Investment Outlook

Investment Outlook fourth quarter 2016



"In that case there would be no camels left."
Answer from one of his advisers when Umar ibn al-Chattab (caliph between 634 en 644) proposed to make currency out of camel skins.


World economy

The summer months have been good to the Laaken portfolios. Stocks and corporate bonds enjoyed strong positive returns. Looking ahead our investment outlook has not been significantly altered and remains moderately positive about the world economy. At the same time we are reluctant to increase market risk at this point in the portfolios as valuations in financial markets remain elevated. In the next four paragraphs our outlook is discussed per region.

Of the developed markets, the US seems best positioned. Positive consumer statistics, recent low inventory levels and a less negative effect of the declining investments in the oil industry could lead to an uptick in growth. Financial markets could respond in a contradictory fashion to positive surprises as this also increases the probability of an interest rate increase by the US Federal Reserve. While monetary policy is carefully tightened in the US, we expect Central Banks in Japan and Europe to continue their unprecedented expansionary monetary policy. This divergence of policies is the main reason why we maintain a large allocation to US Dollar denominated securities. The US election outcome has little effect on our outlook, although it is a potential source of volatility.

Our view of the European economy has improved. However, resilience after the outcome of the British referendum does not mean that structural problems are solved. Solid German business sentiment numbers and more positive loan statistics sooth some of the large uncertainties like the effects of the British referendum outcome, political risks in Italy, France and Germany due to upcoming elections and structural problems at several European banks. Some EU countries have improved public finances. Germany is able to lower taxes and government debt in Germany and the Netherlands has declined.

Japan keeps disappointing. We maintain our positions in Japanese exporting companies because of the extremely cash rich balance sheets and determination by the Bank of Japan to attain inflation through stimulus.

Emerging markets recently experienced a surge. The worries about China caused by ongoing restructuring and outflow of capital have diminished when comparing it to the beginning of this year. Within Asia, the prospects for India and Indonesia seem the brightest to us. A possible US Federal Reserve interest rate increase could cause a correction in these markets. If that would occur we will consider building up a position in the portfolio in Asia. The positive stock markets in Latin America are anticipating positive political developments there. We remain reluctant to go along with that.

Spotlight: gold

Year to date the best performing asset class with a return calculated in Euros of more than 20% is gold. Since the beginning of the year it increased from 1051 to 1319 US Dollar. At the end of 2011 the precious metal was at an all-time high of nearly 1900 US Dollar and declined heavily after that. Laaken has maintained an allocation of 6% in most portfolios when also taking into account the gold correlated position in Royal Gold equity shares. Albeit this large recent increase we hold on to the position for the following reasons: First, we expect demand for gold to gradually increase. Central banks worldwide are net buyers of gold and the growing middle class in China and India are a potential source of growth. Second, a possible interest rate hike is likely to be small and therefore the opportunity cost of being invested in gold does not increase significantly. Finally, gold continues to serve as a diversification in case geopolitical risks materialise.

Asset Allocation

In recent stronger equity markets the allocation to this asset class has been slightly reduced. Within fixed income a significant part of the portfolio is invested in US Dollar fixed income. Furthermore, a longer maturity is maintained in Euro’s than in US Dollar. The large allocation in liquidities is maintained because credit interest rates are relatively attractive. Real estate has a neutral allocation as these stocks should be able to benefit from a continued low interest rate environment. The portfolios are overweight in listed private equity as the selected companies are expected to be able to attain profit growth. The allocation in gold has been discussed in the previous paragraph.

A diversification away from Euro into fundamentally strong foreign currencies is maintained. The portfolios are overweight in US Dollar, Norwegian Krone, Singapore Dollar and Swiss Franc.




Because Japan is the third largest economy of the world and home to many leading and innovative multinationals, we are keen to invest in Japanese equities. At the same time, it can be difficult to find Japanese companies that meet our selection criteria. With our recent purchase of Nintendo, known for games such as Mario, Pokémon and Zelda, we believe we have added a Japanese company to our portfolio that meets our quality requirements. 


For every share that we buy and sell for our customers, a commission is paid to the broker, which in most cases is the custodian bank. For them, these commissions are an important source of income. Because this is an industry that we deal with every day, we used our first-hand knowledge when we selected a broker as a potential investment last year. We took a position in a company named Interactive Brokers.