The ABN AMRO Investment Committee continues to prefer equities over bonds. Within alternative investments, real estate and commodities are favoured, while a neutral stance is taken toward hedge funds. For clients with US-dollar portfolios, it is suggested that they consider hedging europositions, to protect against further weakness in the euro.
Equities buoyed by fundamentals
Improving macroeconomic conditions are supporting equity markets, combined with an upward trend of earnings revisions. Market events, such as the election of Donald Trump and the Italian referendum, have been received positively by markets. And it appears obvious that investors are taking comfort in the improvement in underlying fundamentals. Central banks also remain accommodative. Even when interest rates are raised off their current lows, rising rates will be coupled by improving economic growth.
Rising interest rates largely priced-in to bond market
Bond markets have been negatively affected by the rate hike in the US, including Fed Chair Janet Yellen indicating a further three hikes in 2017. Much of this was already priced-in to bond markets. Keeping a low sensitivity to interest rates in the bond portfolio remains a priority. Inflation expectations remain below what the Fed is targeting. Rate hikes in the US will have far reaching and global effects on the bond market.