13 de diciembre 2011: Absolute Return Index Portfolio


Long US equities vs. Short Eurozone equities .   


 In our view, US equities have a good  chance to outperform the Eurozone in the  upcoming months. Therefore, we buy the S&P500 index with 5% weight and buy  the Eurostoxx50 Short with 5% into our  portfolio. 

Eight reasons for the US to  outperform the Eurozone are, in our view: 

1) The GDP growth gap between the US and Eurozone is expected to reach a 20- year record high of 2.8 pp in 2012E: US GDP growth 2012E of +2.3% compared to  -0.5% for the Eurozone.

2) The Eurozone crisis has continuously escalated over the last two years despite  huge political efforts and could continue to do so in 2012, in our view, until we see  a clear trigger for a turnaround. High expectations have been priced into Eurozone  equities ahead of the current EU summit and may start to fade now. 

3) The fiscal policy will be much less restrictive in the US vs. the Eurozone in 2012.

4) The US presidential election in Sep 2012 could be a positive for US equities. In  the last 19 presidential election years the S&P 500 rose 6.2% on average. 

5) Recent economic data have surprised on the positive side for the US and on the  negative side for the Eurozone. 

6) The earnings downgrade momentum in the Eurozone is clearly stronger than in  the US: Stoxx600 -2.8% over the last month vs. -0.7% for S&P500. 

7) Our FX strategists expect the Euro to weaken vs. the US Dollar over the next 3  months to 1.30 and over 6 months to 1.25. They have also raised the question of  whether China could start to sell Euros (see FX Daily, 9 December 2011). 

8) West European equity funds have seen continuing outflows over the last weeks  while US equity funds have seen more neutral flows.

Otherwise, we stick to our low net equity weight of 0% in our portfolio.

We also  keep our Short IBOXX Euro Sovereign Eurozone TR Index with 15% weight, Gold  with 10% weight and MSCI Japan with 5% weight.

Our absolute rereturn portfolio  has held up well with 1.9% YTD and 0.1% over the last month.

Open Positions 


5%  – S&P 500 Index 


Reasons for the US to outperform the Eurozone are

1) the GDP growth gap which is  expected to reach a 20 year record high of 2.8 pp in 2012E: US GDP growth 2012E of  +2.3% compared to -0.5% for the Eurozone,

2) a less restrictive fiscal policy in the US,

3) better economic data recently from the  US than from the Eurozone and 4) the  expectation of our FX strategists that the Euro should weaken vs. the US-Dollar over  the next 3 months to 1.30 and over 6 months to 1.25.

10%   – MSCI Emerging Market Short Daily  Index

Our EM strategist expects Emerging markets to underperform developed markets  again in 2012. Emerging market equities look expensive on cashflow multiples and we  expect cashflow to come under increasing pressure within GEM, given the greater  degree of cyclical exposure. Key GEM markets are vulnerable to re-distribution from  capital. GEM companies are vulnerable to attempts by the state to mitigate the impact  of a more difficult economic environment on the broader population through higher  taxation, price restrictions and pressure to maintain operational and capital expenditure  at levels, which are sub-optimal for shareholder returns.

5 % –  Fed Funds  Effective Rate Total  Return Index

We expect the single biggest factor driving exchange rates in 2012 will again be the  eurozone sovereign debt crisis. We expect the Euro to decline vs. the US-Dollar to 1.30  by year end and to 1.25 in 2012. Given the elevated risk levels in the Eurozone we also  think currency diversification outside the Euro is important.

5 % iTRAXX Crossover  5-Year TR Index

We think the expected current default risk is too high in historical comparison. We  foresee a normalisation of expected default risk in the longer term.

10%  Emerging Markets  Liquid Eurobond  Index

The main reason for the buy was the attractive coupon. EM sovereign CDS spreads  have mostly returned to their pre-crisis levels, indicating that fiscal policy makers there  have weathered the financial storm relatively well. 

15% EONIA TR Index

In light of the high volatility in the last months,  we think a high cash position is  appropriate and principal protection is key.

10%  Euro Inflation Swap  5 Year Total Return  Index

The inflation swap index offers protection against rising inflation without suffering from  rising interest rates. A monetary policy that is too easy at the global level is driving the  prices of goods, services, commodities, and assets. 

5% Stoxx 600 Utilities  TRN Index

Utilities performance has strongly suffered  over the last years and we see rising  chances of a recovery. Utilities earnings could benefit from rising power prices. The P/E  valuation of the Utilities sector looks attractive in historic comparison and broadly in line  with the overall equity market. 

15%  Short IBOXX Euro  Sovereigns  Eurozone TR Index

We expect continuing rising bond yields considering the continuing peripheral stress as  well as the possible downgrade of further  sovereigns in Europe. The rising fiscal  deficits and higher debt issuance by governments seem to be not fully reflected in  bond market prices so far.

10% DB Physical Gold  Euro HE

We view tail event protection such as a break-up of the euro zone as sustaining private  sector demand for gold. Gold can have a strong diversification effect in a portfolio as it  is  likely  to  move  up  if  risk  aversion  continues to increase and equities continue to  decline. Recently, public sector activity  by central banks in the gold market may be  becoming a more supportive force.


Japan has the second highest trade surplus of all countries globally in 2010 and a high  earnings growth for 2011 of 20% and for 2012 of 25% partly due to recovering  earnings after the earthquake. The MSCI  Japan also gives Yen exposure and thereby  currency diversification outside the Euro.

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Source: Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG

rated “BB”. 13% of the basket is rated “B” and this is one issuer, Venezuela. So the country
with the biggest weight in the index is also the country with the lowest rating. While
Venezuela is clearly a high risk country with 13% weight in the index, the remaining countries
are clearly more solid (for more details on the “MSCI USA TRN” ETF see ETF: Ideas and
Flows, 25 November 2009).
“db x-trackers Currency valuation” ETF 20% weight
In currency markets the majority of the participants are “liquidity seekers”. “Profit seekers”
are a minority in currency markets and can generate returns on the expense of the “liquidity
seekers”. Profit-seekers can generate returns by buying “under-valued” currencies and
shorting “over-valued” currencies. A widely used measure to determine “under-valued” and
“over-valued” valuation for currencies is the concept of “Purchasing Power Parity” where
“fair” exchange rates are calculated by comparing the prices of a basket of goods in different
countries. The ETF “db x-trackers Currency valuation” buys each quarter the three currencies
with the “lowest” valuation out of the universe of the G10 currencies and sells the three
currencies with the “highest” valuation using the PPP concept. In addition, the correlation to
equities and bonds is very low and therefore the currency valuation index helps to diversify
our ETF portfolio. The index is currently long in the US Dollar, New Zealand Dollar, and the
British Pound whereas the index is short in the Swiss Franc, Swedish Krona and the
Norwegian Krona. Risks to the investment include that currencies movements become less
rational again. Especially increased uncertainty about the economic development could
trigger a flight back into expensive currencies like the Swiss Franc (for more details on the
“db x-trackers Currency valuation” ETF see ETF: Ideas and Flows,12 June 2009).
Trading portfolio
We have kept the portfolio unchanged this time. Earlier we bought the “Emerging Markets
Liquid Eurobond Euro Index” ETF with 10% weight and sold the “db x-trackers DJ Stoxx
Global Dividend 100 ETF”. The portfolio targets absolute return and has the EONIA index as

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