Investment Outlook

Investment Outlook fourth quarter 2017



“Nonetheless, our understanding of the forces driving inflation is imperfect, and in light of the unexpected lower inflation readings this year, the Committee is monitoring inflation developments closely.” (Janet Yellen - FOMC statement September 2017)


World economy

Our outlook on financial markets is broadly unchanged since the beginning of this year. This has resulted in few mutations in the portfolios.

The world economy keeps posting good economic macro statistics. Recent numbers, like the Purchasing Manager (PMI) Index for Europe, point towards steady economic growth. For the Netherlands, this sentiment indicator reached 60, a relatively high value. The United States and Asia show consistent figures. Besides that, profit expectations of financial analysts are maintained or increased, which indicates that companies are performing in line with the high expectations.

Despite this predominantly positive outlook, we are monitoring a number of risks closely: First, the recent disappointing election results in Germany seem to have reminded financial markets that many politically related risks remain. European Commissioner Frans Timmermans said last year that Europe is in a multi-crisis. That statement reflected a combination of Brexit, the emergence of protectionist thinking, refugee flows, the result of the euro crisis - such as high unemployment in some countries - and major geopolitical challenges in the form of Putin and Trump. The unity in Europe is continuously tested, and further steps for a more integrated union as proposed by Emmanuel Macron are challenging. Secondly, Trump in the US has fulfilled few of his electoral promises. The market holds high expectations for some reforms that can be beneficial to the economy: a favourable tax reduction and an attractive repatriation opportunity for overseas profits. Thirdly, for Asia, during the year, we took the view that the Chinese government will maintain the policy of stimulus for the economy at least until the people’s party congress in November 2017. Although the concerns about capital outflow from the country have fallen, there is more uncertainty about government policy for the coming period. Finally, there are several, difficult to estimate geopolitical risks, such as recent North Korea actions and rhetoric between that country and the US.



Our base case for inflation is that inflationary pressures remain low due to the ever more efficient distribution of resources, low energy prices, globalization and aging society. As a result, interest rates can also remain at a lower level than the long-term average. Because the low interest rate is a decisive factor for the persistently high valuations, this inflation forecast is an important assumption for our strategy.

The following developments can affect this inflation forecast and, potentially, motivate central banks to accelerate the normalization of monetary policy faster than expected: First of all, unemployment in the US and Europe has fallen sharply in recent years and is now at full employment levels. This is a difference with the past ten years and can lead to wage inflation. To date, this is not visible in average wages. In the Netherlands, however, trade unions are requesting substantial wage increases.

Second, China has spent many years manufacturing different bulk goods, which has led to downward pressure on prices of those goods. With the announced reform, which puts more emphasis on consumption and investment in technology, these goods could increase in value. Finally, the increase in US oil production is the main factor for the oil price decline. Recent statistics, however, indicate a declining incremental production and the structure of the American fields means that existing production capacity should be replaced relatively quickly. Lower oil production in the US may result in higher energy prices.


Asset Allocation

We maintain the slight overweight in equity. The relative valuation of different asset classes is still in favour of equity and high valuations can be maintained, partly due to our inflation expectations. The selection of individual shares is important and has resulted in good relative performance in recent years. Within bonds, part of the portfolio is invested in short maturity US dollar bonds and also includes corporate risk. The high allocation to cash is maintained because the interest rate is relatively attractive compared to short, low credit risk bonds. Real estate has a neutral allocation. The allocation in gold is maintained, partly as insurance against persistent political risks and a possible increase in volatility.

The diversification away from Euro into fundamentally strong currencies is maintained despite currency losses in recent months. Mainly driven by positive interest rate differentials and divergent central bank policy, we remain positive about the US Dollar. Portfolios remain overweight in US Dollar, Swedish and 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.