ABN AMRO Private Bank increases cash ahead of QE tapering

ABN AMRO Private Bank says it has cut exposure to equities and bonds, and increased its cash position because of expectations of tapering of quantitative easing.

The bank said that cash in its balanced model portfolio increased from 0% to 13%, as it cut equities exposure to 40% from 44%, and bond exposure to 37% from 44%.

Exposure to hedge funds and commodities were maintained at 5% and 2% respectively, although property exposure has been cut to 3% from 5%.

Despite the seemingly defensive move, the bank has also raised its global GDP growth forecast for 2014 to 4%.

This is the first time in many years that the bank has raised its forecast global GDP growth rate, and it said that clients should move out of defensive and high yielding equities into growth stocks, including European stocks with international operations.

Didier Duret, chief investment officer at ABN AMRO Private Banking (pictured), said: “Our move into cash is a temporary adjustment in response to the likely end of open-ended quantitative easing, which is driving current volatility and sector rotation. We believe it is time for investors to look beyond traditional sources of yield, which are fully valued, and to consider opportunities in companies exposed to above average economic growth in the US and Asia.”

The bank remains overweight equities, with both the US and Japan upgraded to ‘Neutral’, although Europe has moved to an underweight position.

The bank prefers sectors such as Technology Hardware & Equipment and Automobiles & Components, which have been upgraded to an overweight position.

In contrast, sectors such as Consumer Staples and Consumer Durables have been underweighted.

In terms of fixed income exposure, the bank remains underweight, saying it sees the biggest threat to investors in rising benchmark yields rather than default risk.

It continues to recommend BBB-rated corporate credits, high yield and emerging market corporate bonds.

In currency, the bank prefers the dollar, RMB, Swedish krona and Polish zloty. It reatains a bearish view of commodities, but said it recommends long/ short
equity and event-driven hedge funds as well as listed property.


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