This month we buy the Stoxx600 Healthcare index with 5% weight. According to our CROCI team analysis Healthcare is the only deep value sector on a global basis. The Healthcare sector allows investors to buy a much more stable …
earnings stream compared to the Stoxx600 without paying significant P/E premium .
With this step our portfolio still has a low 20% net equity weight and thereof 15 percentage points in defensive sectors Utilities and Healthcare. The equity market has been on the weaker side in the last weeks on the back of weaker economic data, from the US as well as the Eurozone. European Banks have been among the weakest sectors over the last month as the Euro sovereign debt crisis has come into the focus again. So it was beneficial for our portfolio that we had sold the Stoxx 600 Banks index one month ago. In our view, the pressure on the equity market could well continue in the coming weeks.
We stick to our positions in the MSCI Japan, in Gold and in Oil. The MSCI Japan also gives Yen exposure and the YEN tends to appreciate in times of risk aversion and gives currency diversification outside the Euro. Gold should give the portfolio some downside protection, if central banks surprise the market with more easing monetary policy measures. Oil price has held up well relative to news flow on the economic slow down.
We stick to our Crude Oil position as protection against political risk and supply side disruptions. We also stick to our Short IBoxx Euro sovereign position with 15% weight. We see more risks of rising yields than a continuing decline.
We find the risk/return profile of the EM Liquid Eurobond index more attractive than Eurozone sovereigns.
Our absolute return cross asset portfolio earned a a return of 1.0% YTD after 2.1% in 2011, 10.3% in 2010 and 12.0% in 2009 .
5.0% MSCI JAPAN TRN Index
Yen exposure and thereby currency diversification outside the Euro. Especially, in times of risk aversion the Japanese Yen should benefit.
10.0% Stoxx 600 Utilities TRN Index
5.0% S&P 500 Index
5.0% DJ EURO STOXX 50 SHORT
Admittedly, the recent economic data in the US also came in on the weaker side.
5.0% Stoxx 600 HealthCare Index
15.0% Emerging Markets Liquid Eurobond Index
10.0% Euro Inflation Swap 5 Year Total Return Index
15.0% Short IBOXX Euro Sovereigns Eurozone TR Index
10.0% DB Physical Gold Euro HE
5.0% DB Brent Crude Oil Booster
10.0% EONIA TR Index
We think a high cash position is appropriate as risks are higher than implied volatility suggests.
5.0% Fed Funds Effective Rate Total Return Index
levels in the Eurozone we also think currency diversification outside the Euro is important.
Source: 10 April 2012: Absolute Return Index portfolio – Deutsche Bank AG
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