IDEA of the month: We buy a Gold Euro hedged Index with 10% weight and sell the Balanced Commodity Index. High uncertainty is reflected by the strong 10% sell-off of .……
of global equities in the last two weeks. In the focus of the current sell-off are the high sovereign debt levels in the US and in Europe, the fears of a pronounced economic slowdown in H2/2011 or even a US recession and low GDP growth expectations going forward. Moreover, the stability of the two biggest world currencies USD and EUR is questioned. With financial markets prone to recurring bouts of risk aversion, we believe gold will provide a safe haven for investors.
Private and public sector buying of gold is likely to continue in an environment of negative real interest rates. Moreover, 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. We have sold the commodity basket because of the very weak US ISM index which in our view is one of the most important macro-economic indicators for commodity markets.
In the light of the strong equity sell-off our portfolio has held up very well over the last month with a decline of 0.7% and a YTD performance of +0.9%.
We have benefitted from a low net equity weight of 20%. Our positions in the Dax and in the Stoxx Utilities have strongly suffered last month, but our position in the Stoxx Healthcare has held up well and our MSCI Japan has even posted a small gain, benefitting from stronger yen. Our emerging markets short position has strongly benefited over the last month. Currency diversification remains very important in our view, not just in the three major world currencies US dollar, euro, yen, which suffer from high debt burden and needs for sovereign action, but in particular into smaller currencies with less debt burden.
The valuation of many equity markets looks currently attractive, but markets are far from having stabilized and earnings downgrades may follow over the coming months. The extremely low valuation of equities is reflecting a huge gap between the analysts’ earnings forecasts on one hand and the earnings priced in by the market.
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Source: Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG
