In today’s uncertain investment environment, ABN AMRO favours a higher stake in cash over other assets, reflecting its earlier decision to reduce risk in its investment portfolios. A relatively large position in cash provides a measure of safety and can be used for future investments when opportunities occur. The bank is currently underweight in both equities and bonds.
Richard de Groot, Chair of ABN AMRO’s Global Investment Committee, said: “Economic conditions have not improved since we suggested that investors reduce risks in their investment portfolios at the start of the quarter. Meanwhile, Americans are now also seeing lower economic growth, and the trade war is having a major impact on markets and on sentiment. If the US and China called a truce, we could see a positive effect on the investment climate, but it’s anyone’s guess if and when the dispute will be resolved. And so we remain cautious and stick to our preference for cash.”
Limited upward potential for equities
Solid profitability and defensive characteristics
The sectors ABN AMRO favours are those that are known to be defensive or with resilient earnings, and that are capable of performing well despite a declining economy – e.g. information technology, health care and communication services. The bank takes a less sanguine view of more cyclical sectors, which are tied more directly to economic growth. This includes industrials, consumer staples and financial sectors.
Bonds still out of favour
ABN AMRO retains its underweight position in bonds. Within this category, the bank takes a neutral position on higher-risk bonds, such as emerging market debt (EMD) and high yield, as these are more vulnerable to shocks and global recession fears. ABN AMRO’s most recent suggestion had been to reduce the allocation to high-risk bonds and to use the proceeds to invest in less risky bond segments, such as government-related loans (including bonds issued by the European Investment Bank and the government bonds of semi-core eurozone countries). Bond investors should also take advantage of the ECB’s asset purchases and invest in bonds that are part of this programme.
