Robeco: Happy new ... investment strategy!
Risk is taken off the table as the new year ushers in volatility. Many factors cause slump, from Grexit threat to oil price collapse. Macroeconomic outlook: QE likely in the Eurozone, ‘Grexit‘ unlikely. Asset allocation: Overweight in equities is reduced to neutral.09.01.2015 | 11:23 Uhr
Those who had hoped to enjoy a couple of slow days at the start of the year have been disappointed. Three trading days into 2015 and all of the major stock markets are into the red, bond yields have dropped to new all-time lows (with the exception of the US), and the oil price has plummeted below USD 50 per barrel. For the third time in four months there is a sense of panic in the more risky parts of the financial markets, with European stocks dropping by more than 3.5% in a single trading day. Greece and oil seem to be the culprits behind the sell-off, but actually for there have been several issues simmering below the surface for some time. The growth slowdown in China, weaker European economic growth prospects, pricy equities, Russia, and the fear of deflation are all weighing on sentiment.
So far, Robeco Asset Allocation has been willing to bear the volatility. In both previous sell-offs (October and December) we stuck to our overweight positions in equities and high yield. However, we are currently less inclined to do so and have decided to lower the risk profile of our portfolio. The reasons to do so now are as follows:
A more volatile year
The first observation is that we expect 2015 to be a more volatile trading year, with the easier part of the stock markets’ rally now behind us. As can be seen from the chart below, the first part of the recovery in stocks is normally one that is characterized by declining levels in volatility. The second phase, which we think we have currently entered, is the phase in which stocks still go higher, but will do so with a higher level of volatility. The period of cheap valuations has passed and gains in stocks will be more linked to the underlying fundamentals. This is particularly true for the US, where the Fed has ended its QE expansion program and markets are generally anticipating the first rate hike later this year.Volatility in itself does not need to be bad, so long as the general direction of stocks remains up. With liquidity still ample and increasingly fewer return-yielding investment alternatives available, we continue to expect stocks to trend higher. This more volatile trading environment means that we are no longer comfortable with being overweight all of the time, like we were during 2013.