More on our views

When we increase the allocation to one asset class in portfolios, we have to decrease the allocation to another. That’s why our tactical asset allocation (TAA) decisions come in pairs, where we underweight and overweight relative to our strategic asset allocation (SAA) weightings. The specific numerical weights from the chart relate to a EUR balanced portfolio and can be adjusted for different profiles.

US equities / US investment grade bonds
Given our positive outlook, we believe US stocks can outperform low-yielding US investment grade bonds at this stage of the business cycle.

UK small cap / Global equities
UK small caps lagged in the recovery and valuations are more attractive than for global equities, while its cyclical sector composition is supportive as growth recovers.

Asian high yield bonds / US investment grade bonds
Asian high yield bonds offer significant additional yield over US investment grade bonds, and default risks are well compensated for.

Asian high yield bonds / European government bonds
As the business cycle progresses supportive factors for equities stay in place, including growth in global corporate earnings, market momentum and  monetary and fiscal support.

Emerging market sovereign debt / US investment grade bonds
Emerging market sovereign debt offers additional yield over US investment grade bonds. A weaker US dollar and rising oil prices would be likely drivers of tighter spreads.

US Treasuries / Eurozone government bonds
We have higher conviction in US Treasuries as a diversifier than in European government bonds thanks to their higher yield to maturity and better credit quality.

US Investment grade bonds  / Eurozone government bonds
The rise in USD yields makes currency-hedged USD bonds better value than European government bonds for EUR-based investors.

Our asset allocation vector explained

The tactical asset allocation vector reflects the evolving investment environment by specifying adjustments relative to a portfolio’s benchmark weights as defined by the strategic asset allocation (SAA)

A positive view means we hold more than the benchmark allocation in an asset class or sub-asset class (overweight). A negative view means we hold less than the benchmark allocation (underweight).

The sum of the weights across all asset classes is zero – if you increase in one area you need to decrease in another. Overall, relative to our EUR balanced SAA we currently hold 4% less of the portfolio in fixed income and instead hold 4% more in equities.

The view of each asset class is made up of sub-asset class views. Although we are negative on fixed income overall (-4%), there are areas where we see potential, such as Asia high yield (+3%).

The specific numerical weights given here relate to a EUR balanced portfolio and can be adjusted for different profiles.