Asset allocation in focus after terror in Paris

The impact on markets has been very short lived as investors have learned from history that, after the initial contraction, markets revert quickly to levels before the event. The tragic events in France are still a reminder of the unknown and unexpected events investors have to accept when harvesting risk premiums in markets.

Near-term outlook constructive for risky asset “We change our minds when the facts change” is the core of our tactical asset allocation philosophy, and we work hard not to second-guess the next market moves. Facts that support our positive stance are; zero rates and a positive credit environment, stable or improving growth outlook, some signs that China’s economic slowdown has turned the corner, and lower commodity prices which supports commodity importers. Sentiment still negative

Most bearish investors have capitulated as equity markets have been moving higher in the last month. Still, sentiment and positioning are negative, which supports markets higher for the end of the year. Economic surprises indices are on the rise again, which tells us that latest macro numbers have been stronger than expected.

Stay overweight HY credit. The running yield of HY credits offer an attractive return going forward. Especially in Europe the credit quality has been stable and defaults at a record low. Zero rates and ample liquidity support this asset class. We stick to the equity overweight Within equities we remain overweight Europe and underweight the US. Institutional portfolios are also overweight in emerging markets. Within fixed income we overweight high yield and underweight government bonds.