Investment Outlook

Investment Outlook fourth quarter 2018



“If this, perhaps inadvertently, goes to a place where we have widespread tariffs that remain in place for a long time, a more protectionist world, that’s going to be bad for the U.S. economy.” Jerome Powell - Federal Reserve Chairman, sept 2018

World economy

This investment outlook remains largely unchanged compared to the previous quarter. Macro economic statistics confirm the expected growth in developed regions and seem to be holding for 2019. The positive points from our previous quarterly report are still applicable. The sentiment is becoming more erratic however, partly due to the large amount of predictions of the next crash. To date, such predictions seem to be lacking real grounds. However, economies are getting further into their economic cycles and therefore some caution is appropriate. Below are some of the reasons that warrant caution:

First of all, the developed markets have been at a level of full employment for a number of months now. Although the effect of more part-timers and self-employed professionals make it difficult to estimate, the investment committee expects more wage inflation in the coming years than in the past five. A number of companies that we follow mention the higher wages that they are compelled to offer to employees as a cause for lower margins. After years during which capital has made considerably more return than labour, it is plausible that this will change over time. This increases inflation. Higher inflation may cause central banks to tighten the loose monetary policy faster, which in turn depresses the economic climate. In the US, core inflation (excluding energy and food) has already risen to above 2% in the past year. However, core inflation in the Eurozone is still below 1%.

Secondly, continuing tensions and restrictions with regard to international trade can have a negative effect on global prosperity. Up to now, financial markets have mostly shrugged at recent developments. An actual trade war, however, can seriously reduce risk sentiment in the markets and, in the long run, slow down global growth. The recent trade agreement between the US, Canada and Mexico should not be interpreted as an indication of real improvement.

Finally, a number of emerging markets are not in good shape. Especially Argentina and Turkey, which are plagued by extreme inflation. In addition, debt levels in emerging markets such as China are high and these emerging countries are sensitive to higher US interest rates. A shock for these regions can also have a negative effect on the developed markets.

Fixed income and liquidities - Despite turbulence in emerging markets and a smouldering trade war, the ECB outlines positive economic prospects for the Union. It looks therefore as if the ECB will end the buy-out program in December. Nevertheless, the official interest rate, currently -0.3%, is not expected to be increased before the end of the summer of 2019. In addition, maturing bonds are still reinvested, which means that the Central Bank will still purchase approximately EUR 20 billion in bonds per month after the end of the purchase program. In practice, European monetary policy remains accommodative.

The US Fed increased the interest rate to a range of 2-2.25% at the end of September and expects 3.125% for 2019. This remains positive for variable bonds in USD, which are periodically adjusted to the then current interest rate.

Corporate bonds remain challenging, in the light of rising interest rates and historically low risk premiums.

The investment committee abides by the bond strategy with short maturities and low interest rate risk. The high grade (AA and AAA rated) portion of the Euro bond portfolio is now largely held in liquidities and sources of return are sought in individual selection of loans and bonds denominated in foreign currencies such as USD and SGD.

Equities - A slight overweight in equity risk is maintained. We have reduced the weighting of a number of companies that are expected to be further in the economic cycle in favour of allocation to companies in the energy sector. With the current oil price, many of these companies can operate profitably and that should benefit investments in the sector.

Markets remain characterized by high valuations and therefore it remains important to emphasize the valuation of individual positions in the portfolios. Preference will continue to be given to positions in developed markets. In this, the US seems better positioned for growth than Europe.

Listed Private Equity - Private Equity investors have plenty of room to add value in the situation of low interest rates and good economic development. The overweight in this asset class is maintained, but closely monitored because popularity among investors has resulted in a lot of money flow towards this segment of the market.

Real estate - During 2018 the allocation in this segment has been reduced to underweight. Real estate equities remain highly interest-sensitive and the investment committee continues to look critically at the valuation of the underlying real estate.

Precious metals - The position in gold remains mainly an insurance against geopolitical risk.



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.