ABN AMRO changes asset allocation

Press release -

Equities out of favour, commodities weighting changed to neutral

ABN AMRO has changed its overall asset allocation, as the bank takes a less favourable view of equities and is reducing its weighting from neutral to underweight. The health care sector is now more in favour (moving from neutral to overweight), while the industrials sector is viewed more negatively (moving from neutral to underweight). With the gold position exited, the commodities weighting has reverted back to neutral, while exposure to corporate bonds was enhanced in the fixed-income portfolio.

Richard de Groot, Global Head at ABN AMRO’s Investment Centre, commented: “These changes to our allocation have made our equity portfolio more defensive and thus less reliant on economic growth and earnings growth. The Fed’s willingness to reduce rates is positive for investors, but a large proportion of this benefit is already priced in to current prices, and further upside is therefore limited. Meanwhile, business sentiment has weakened significantly due to the trade war re-escalation and this is likely to weigh heavily on earnings. All told, we feel that the possibility of a downturn outweighs the potential for further improvement, while the chance of recession remains low. It’s time to reduce risk in equities and we’d suggest that investors put the proceeds in cash.”

More positive about health-care sector

At sector level, ABN AMRO is increasing its weighting of the health-care sector to overweight, noting that earnings growth of health-care companies is less dependent on the economic cycle. What’s more, De Groot sees improvements in the pipeline of new medicines: “This enhances the resilience of these companies, even in an environment of lower economic growth.” ABN AMRO is much less keen on the industrials sector and has reduced its position to underweight in the face of weaker economic expectations, particularly in Europe. De Groot also points out that the sector and its supply chain may be hurt by the negative effects of trade tensions.

Increased exposure to corporate bonds

Bonds continue to be out of favour. Within the bond portfolio,  ABN AMRO has strengthened its position in corporate credits, using the proceeds from a reduction in inflation-linked Italian and Spanish government bonds. European corporate bonds should be supported by the expected bond-buying programme of the European Central Bank (ECB).

Selling gold

Monetary stimulus in the form of lower interest rates and bond-buying programmes is back in vogue, the bank observes. In this environment, gold prices have also risen, reaching ABN AMRO’s end-of-year forecast price earlier than expected. ABN AMRO suggests that investors take profits and sell gold.

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