ABN AMRO : MeesPierson reduces equity...

ABN AMRO MeesPierson is realising some gain on its equity position by cutting its large over-exposure in half. The sales will benefit ABN AMRO's cash position, giving the private bank the means to play into new opportunities in the future. By decreasing its over-exposure, ABN AMRO MeesPierson is also reducing exposure to risks - including political risks - and other uncertainties on the horizon. The private bank maintains a moderate overweighted position in equity.

Ben Steinebach, ABN AMRO MeesPierson's Head of Investment Strategy, explains. 'Back in October 2016, we increased our equity weighting from neutral to slightly overweight, and then further extended the position one month later. In the meantime, equity prices have gained roughly 11 percent worldwide on the back of three positive factors: the macro-economic backdrop has remained favourable, corporate earnings growth has accelerated, and valuations have stayed reasonable. That's why equity continues to be our preferred asset class.'

Exiting commodities

ABN AMRO MeesPierson is selling its entire, currently overweight, position in commodities, to benefit the cash position. The private bank states that it has become more risky to have a broad selection in this asset category. Steinebach: 'Commodity prices have risen sharply over the first half of 2016. Until recently, the prediction was that energy prices in particular would continue gaining ground. We no longer think that's going to happen, so we're exiting commodities altogether.'

US versus European high yield

Because of recent market developments, ABN AMRO MeesPierson is swapping its position in European high yield bonds for the US equivalent. Until now, the private bank considered US high yield to be too risky, especially considering the large share of energy companies in this segment. But due to the increase in oil prices it's now more likely that energy companies will make gains, and that in turn boosts the attractiveness of US high yield. These bonds can also benefit from the border tax that the US government plans to introduce, as that would hurt foreign companies. Moreover, returns on European high yield could be hampered by the uncertainty resulting from the upcoming elections in France, Germany and perhaps Italy.

Playing into demand for bonds

Bonds currently have a substantially underweight position in the private bank's portfolio, and that's not changing as it is anticipating a moderate increase of global capital market rates. Rising yields will predominantly affect sovereign bonds, the bond class in which the bank is especially under-exposed. The remaining exposure will continue to act as a cushion which ABN AMRO MeesPierson will use to pursue an active duration policy. When yields drop, the bank increases the duration and vice versa. To generate additional returns, the private bank invests a large percentage of its bond allocation in European investment grade bonds, comparable to the type of bonds the ECB is purchasing. That way, ABN AMRO MeesPierson benefits from the extra demand for these corporate bonds.