| Asset allocation barometer / April 2004 : action and diversified funds allow the model portfolio to outperform the MSCI World index |
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| 19/04/2004 | ||
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Markets have undergone a volatile month in March, ending the month at a lower level. This volatility is rooted into the frequent back-to-back trips between good news (job market recovery in the US) and bad news (bombings in Madrid). Bond markets reached a new peak with a 0.8% performance in March. The Euro fell to USD1,22 last month. The release of higher than expected US employment numbers upset those tendencies. The Japanese economy shows signs of recovery while the European statistics (IFO index) still points toward a slow economic recovery. The price of the Brent stayed above the USD32 per barrel line. The index of raw commodities kept gaining further points.  Model portfolio The objective of the portfolio is to outperform the money market, while reducing the risk on capital on a 12-month basis. The following graph shows the asset breakdown of this portfolio:  The performance of the model portfolio (+0,80%) is above the cautious funds average (+0,25%). This outperformance is essentially rooted in the returns of the balanced funds (+1,1%) and action funds (+1,5% against +0,21% for the MSCI World index). The fixed-income allocation has underperformed the EUROMTS index (+0.84%) due to a lower correlation of the portfolio with short rates and the widening of the high yield obligations spreads.  Outlook The current strength of the global economy and related productivity gains are good news if business profits are to take off. The ongoing and exceptional growth of stock markets for a year in keeping with those vibrant markets. Events in March illustrate that once the market has put right, both the bond and stock markets should be subject to movements in accordance with the global economic situation. However, our US stocks econometric assessment model shows that the market's current level is compatible with a stagnation of the anticipated profits at the current levels and a 1bp hike of the long rates. As a corollary to this situation, a slowdown of the global economic growth could have little impact on the stock markets, showing the cautiousness of the investors. US job creation in March the could set off a virtuous circle that would eventually benefit the global economy. Indeed, this number, along the upward inventory variation and the low inventory/delivery ratio point towards a lasting recovery of the American economy. While this movement extends over time, American assets are deemed to be once again attractive by investors, leading to an appreciation of the dollar to €1.22 against €1,25 previously. As well, the external contribution to the Japanese economy seems to be accompanied by a recovery of the investment. Sovereign bonds have set new records in March and deliver low payouts with regards to their underlying risk. The likelihood of a rate hike both in Europe and in the US in the second quarter due to the continuation of a strong economic growth should lead to a rise in long rates. This asset class is underweighted in the model portfolio. High-yield bonds seem to be more correlated to the stock and bond markets. Their risk premium is currently in the lower part of the historical performance. Alternative management (long/short) allows for the diminution of the model portfolio volatility and partly offset the decrease of bond yields. As long as the signals issued by our model portfolio look so favourable, we will maintain its equity exposure. The Europe and US portfolio remains diversified mainly through growth funds (e.g. high yield) with a strong small- and mid-cap bias. Emerging equities, whose relative price remains discounted, give a cyclical twist to the portfolio, which is adapted to the current economic situation.
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