Didier Duret - RTL.nl

Work in progress 

Quarterly Outlook Q4 2012 

Investment 

Strategy

Quarterly Outlook Q4 2012 

Didier Duret 

Chief Investment Officer, 

ABN AMRO Private Banking 

September 2012 


The enormous efforts in progress since the start of the 

global financial crisis in 2008 seem finally to be showing 

some results, though there is still more to be done. 

However, the end of “muddling through” may be in sight. 

The European Central Bank has recently taken some 

uncharacteristically bold steps to protect the single currency, 

and certain indicators in the United States are starting to 

surprise on the upside. 

The global economy now faces political uncertainties: 

leadership change in China and possibly in the US, the US 

“fiscal cliff” at year-end, and the stringent measures 

required to ensure the euro’s survival. Investors should 

remain aware of these while pursuing progress on the value 

of their portfolios. 

The time is therefore ripe to abandon anxieties and with 

them, safe havens, and government bonds in particular. 

These have become especially expensive and should be 

avoided in favour of lower-rated investment-grade bonds, 

European equities and high-quality listed US property, 

among other asset classes. Selected hedge funds can also 

offer opportunities. 

Through these and other investment views, the ABN AMRO 

Private Banking Research & Strategy team aims to assist 

you in investing prudently and successfully. Your 

Relationship Manager or nearest Investment Advisory 

Centre (see back cover) is also ready to work with you on 

selecting the asset classes reflecting the risk/return strategy 

that best meets your investment needs, continuing the work 

in progress on your investment portfolio.

Contents 

Quarterly Outlook Q4 September 2012 1 

Introduction – “Work in progress” 2 

Economics – “Finding a cyclical bottom; headwinds remain” 3 

Economics –“Pragmatic progress in the euro crisis” 4 

Economics –“Splitting the work to fix the euro” 5 

Equity market outlook 6 

Equity market – Sector outlook 7 

Equity market – Megatrend theme update 8 

New equity theme – “Biological solutions” 9 

Bond market outlook 10 

Bond portfolio allocation 11 

Currency outlook 12 

Forecasts 13 

Hedge funds 14 

Commodity outlook 15 

Property 16 

Private equity 17 

Asset allocation 18 

Contributors 20 

This is an international ABN AMRO publication. 

Risk profiles and availability of investment products may differ by country. 

Your local Advisor will be able to inform you.

2 


We may well be entering an investment phase that builds 

for the future and focuses less on “muddling through”. 

Traditional sources of safe yield are exhausted, 

forcing investors to look for yields on instruments 

that discount future economic value. 

Faster public-policy reforms, political and social changes and 

game-changing technologies can remedy the eurozone and 

US debt crises – despite the apparent paralysis caused by 

slow global growth and political “getting by”. The economic 

slowdown, painful and politically risky as it is, is not a slump 

but a healing process for more sustainable growth that is less 

dependent on debt, greed and trade imbalances. 

Policymakers have become masters of controlled fiscal 

austerity; below the surface, resilient and dynamic private 

firms store future value. Thus 2012 may yet be seen as a 

turning point, economically for the US and politically for the 

European Union. 

Key trends 

• Slow economic growth. With no clear timing for recovery, 

the worst risks seem covered by leading developed 

countries’ pragmatic and extraordinary reflationary 

monetary policies and emerging countries’ fiscal initiatives. 

These moves will ultimately lead to more sustainable 

growth, removing market sentiment from the thrall of the 

negative scenario (see graph). 

• Much lower systemic risks of a eurozone break-up. 

Deflation is now policymakers’ primary concern in the US, 

eurozone and some major developing countries. The “fiscal 

cliff” in the US, the chances of a slump in Europe and the 

Scenario over time 

Economic expansion 

2 % 

1 % 

2012 

-1 % 

-2 % 

Anaemic long-term growth 

Euro 

break-up 

Economic contraction 

Source: ABN AMRO Private Banking 

Controlled austerity – Slow recovery 

Euro 

break -up 

Euro 

break- up 

Euro 

break- up 

Euro 

break- up 

Research & Strategy 

Didier Duret – Chief Investment Officer 

possibility of a hard landing in China are known risks, 

allowing for positive surprises. 

• Wide sector divergences in the economic “bottoming out”. 

The crisis has reshuffled private firms’ competitive order, 

with a new mix of winning technologies and countries for 

them to operate in. And consumer behaviour and the 

sources of demand are changing rapidly, calling for 

investor positioning that deviates from stock market 

benchmarks. 

Key challenges 

• Building on market confidence. Policymakers must leverage 

the sentiment gained through their bold commitments. 

The financial markets will be the best judges, rewarding 

effort and penalising reform sluggishness. 

• Differentiating between expensive and risky assets. 

Investors must ascertain which can legitimately remain 

expensive – such as cash-rich, sustainable-dividend 

companies – and those whose high price reflects risk, 

such as US Treasuries and German Bunds. 

• Riding short-term market risks created by the heavy 

agenda of change. Even companies with solid fundamental 

value are not immune to disruptive changes and volatility. 

Sustainable growth 

2020 

Rosy scenario 

Central scenario 

Negative scenario 

Key opportunities 

• Equities, now overweight. 

The reduction in systemic risk 

highlights the value left by the crisis, 

and the resilience of earnings during 

slow economic growth. 

• Biotechnologies. An economic 

revolution in the making – 

independently and within the macro 

landscape – with multiple facets 

beyond Healthcare (overweight). 

• High-quality property. A highyielding, 

low leveraged asset, backed 

by cash flow. Malls and rents are 

supported by turnaround signs in the 

US housing sector. 

• Specialised hedge funds. The case 

stands for managers such as 

discretionary global macro and 

event-driven. 

• Convertible bonds, once the primary 

market revives. US high-yield and 

emerging-market bonds are 

expensive but remain a source of 

yield in a slow growth context.

Finding a cyclical bottom; 

headwinds remain 

Sustained below-trend growth 

The global business cycle has weakened this year. We believe 

a modest growth acceleration is in store for the next couple 

of quarters as the manufacturing cycle bottoms out and 

improving financing conditions, slower inflation and policy 

stimulus provide some support for economic activity. 

Above-trend growth is unlikely, however, as fiscal policy 

remains restrictive in many advanced economies and 

deleveraging continues both in the financial sector and 

among households. A sustained period of meagre growth 

will create an environment for inflation to retreat further, 

barring commodity price shocks. It will also leave the global 

economy vulnerable to any negative fall-out from the euro 

crisis. We expect Chinese policymakers to take further action 

to bolster activity, so as to save the new leadership from 

facing a sharply slowing economy. 

Recent economic indicators confirm that the global economy 

has slowed, but some encouraging signs have also appeared 

– with the most promising in the US, among major 

economies. Its labour market is continuing to improve, 

though sluggishly. The housing market there has apparently 

started a recovery (see graph), which could continue for a 

long time: house prices are rising again in almost all regions, 

the number of unsold homes is declining and residential 

construction is picking up. (Construction fell sharply during 

the downturn, leaving the sector very small, and so it will take 

a while before greater construction spending boosts GDP 

growth). 

US corporations remain cautious, however, possibly because 

of the upcoming presidential elections and consequent fiscalpolicy 

uncertainty. If Congress does not change current 

legislation, the economy will be over the “fiscal cliff” from 

year-end – hitting significant fiscal tightening. We assume 

that Congress will soften the tightening but not remove it 

entirely. Thus we expect the US economy to continue 

growing modestly before gaining further momentum in 2013. 

Business confidence is improving 

Most countries’ confidence indicators have weakened this 

year, yet in the US and Europe purchasing managers' indices 

have stopped declining – and some are rising modestly – 

most probably stemming from a range of factors such as 

falling inflation, a rapid inventory reduction and easier 

financing conditions. We think that these elements will 

continue supporting economic activity, at least for now. 



and Group Economics 

Han de Jong – Chief Economist 

A new pace of growth for China 

China is now the world’s second-largest economy, 

responsible for a significant share of global growth since the 

onset of the crisis. But growth has slowed markedly this year. 

Although some deceleration was intended under the current 

five-year plan, which aims to focus more on consumption 

and less on investment and exports, that target has been 

overshot. A downturn in the housing market has also hit 

overall activity. But policymakers, unlike many in the West, 

can use a host of fiscal and monetary policies to buttress 

activity, especially as they have taken only small steps 

recently. And as the leadership will change later this year, 

those currently in power will doubtless want to ensure that 

their successors do not face a hard landing, and will probably 

step up stimulus efforts as necessary. Finally, as the business 

cycle in advanced economies is bottoming out, an improved 

external environment may also be in store. 

US House prices year-on-year (%) 

20 

15 

10 

5 

0 

-5 

-10 

-15 

-20 

2005 2006 2007 2008 2009 2010 2011 2012 

Source: US Case Shiller home price index, Bloomberg

4 

Pragmatic progress 

in the euro crisis 

Keeping united in a crisis 

The euro crisis remains the greatest risk to the global 

economy. A break-up of the common currency would be 

extremely costly, pushing Europe into a sharp downturn and 

pulling the global economy down as well. So far, European 

policymakers have managed to keep things together, but it 

has been difficult. Crisis situations have been met with 

emergency measures from governments and the European 

Central Bank (ECB), while politicians are engaged in a 

complicated process of improving the monetary union’s 

institutional arrangements. 

The resolve it takes 

The strategy seems relatively clear. Single-currency 

success requires fiscal, banking and, possibly, political union. 

Most involved agree on this, but it is unclear that there is a 

uniform understanding of what this all means. Still, a number 

of important and encouraging steps have been taken on this 

long road. Commentators outside the eurozone tend to 

underestimate the ultimate desire of all involved for the 

process to succeed, but they should bear in mind, however, 

that progress is necessarily slow as it entails complex 

negotiations. 

A pragmatic ECB 

The role of the ECB in all this – apart from taking on 

responsibility for supervising banks – is to keep the financial 

system functioning and to create an environment conducive 

to economic growth. These non-conventional measures have 

led the ECB to double its balance sheet (see graph) in the 

wake of the Fed. Although some of its measures have been 

controversial, the ECB appears to fully understand what it is 

meant to achieve and, under the leadership of Mario Draghi, 

seems determined to deliver. 

The most likely scenario is that the eurozone pulls through. 

As financial markets accept this, tension and financing 

conditions will ease over the next couple of quarters, 

restoring business confidence and supporting economic 

growth. 

Central Bank balance sheets: ECB/Fed on index basis 

350 

300 

250 

200 

150 

100 



Han de Jong – Chief Economist 

FED ECB 

50 

Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 

Source: Thomson Reuters

Splitting the work 

to fix the euro 

EFSF 

ECB 

ECOFIN 

ECB to the rescue 

Financial market worries about the future of the singlecurrency 

area have eased notably over recent weeks. The 

eurozone authorities desperately needed to increase their 

short-term financial firepower, and the increase in the new 

lending capacity of the European Financial Stabilisation 

Mechanism/European Stability Mechanism to €500 billion 

was a step in this direction, while the ECB’s new bond 

purchase programme, which will be unlimited, has finally 

provided the eurozone with a credible sovereign back-stop, 

as long as countries sign up to structural reform 

programmes. Indeed, the ECB’s actions have reduced the 

big systemic risks to the euro related to financing problems 

in big member states. 

The real solution to the crisis is, of course, in governments’ 

hands and the ECB's contribution is merely to keep the 

financial system working as well as it can and to create an 

interest-rate environment that most supports economic 

growth. 

ESM 

OMT 

SMP 


Group Economics 

Nick Kounis – Head Macro Research 

Politicians now have the tools 

What do politicians have to do? The authorities in vulnerable 

countries need to stay on track with the adjustments 

necessary to bring public finances to order and restore 

competitiveness. This will be economically and socially 

painful and will take years, rather than months. Deeper 

economic integration is also crucial. A move towards a 

banking union to break the vicious circle between banks and 

sovereigns is on the cards. The aim is to put a single 

supervisory mechanism in place by the middle of next year, 

which will allow the eurozone’s rescue funds to directly 

re-capitalise banks. 

A fiscal union, requiring a bigger pooling of sovereignty, 

is another challenge. This will be a long process, but the 

fiscal compact, ensuring tougher budgetary discipline, 

should come into force at the start of next year. Improved 

public finances and more powerful fiscal rules should 

eventually open the way to a single eurozone bond. 

IMF 

EU 

QE

6 

Equity market outlook 

Recognising progress 

The current political muddling through on the eurozone and 

US debt crisis entails a new economic reality of slower global 

growth that is dampening global equity market sentiment. 

This reality can also be viewed as a new “wall of worry” for 

equity investors. However, this state of the world economy is 

not necessarily negative for equities. At least, there is 

movement and no political nor economic paralysis. And we 

believe that the movement is in the right direction, with active 

support from the central banks to reduce systemic risk and to 

move towards more sustainable and more balanced global 

economic growth with a new competitive order for firms in 

the global marketplace. 

Gaining exposure in the ebb and flow 

September’s politically momentous decisions by the ECB and 

EU leaders will lead either to an acceleration of work in 

progress or to a temporary setback. A positive outcome 

would give further support to the equity rally in Europe and, 

in particular, to emerging countries. It could also potentially 

fuel a renewed focus on more cyclical (as well as financial) 

stocks. A negative outcome would hamper equities, but not 

necessarily be a disaster in term of earnings trends. As long 

as steps go in the direction of the sustainability of public debt, 

there is progress, and any setbacks in Q4 could then be entry 

opportunities. Despite the recent rally, valuations are in 

historically attractive territory, for both developed and 

emerging markets. 

Re-entering Europe 

The geographical preference is tilted towards Europe (now 

overweight) at the expense of the US market (underweight) 

considering the valuation gap (see graph) and potential catchup 

due to lower systemic risk. The US has served as a safe 

haven for almost two years and is therefore trading at above 

Asset class Fundamental view Recommendations 

Equities 

Overweight 

Abating systemic risk unveils the value of equities when 

bonds yield little 

Strong earnings on broad indices mask a huge 

divergence. The short-term downside risks present 

opportunities 

Earnings sustainability is a safe haven 

in equity markets 


Sybren Brouwer – Global Head Equity Research 

average historic multiples (see graph). In the next few 

months, tables could gradually turn in Europe’s favour both 

from valuation and earnings momentum perspectives. 

Emerging markets (overweight) should regain ground, 

as they are also modestly valued. Even though short-term 

earnings are suffering in the global economic slowdown, 

we believe that mid- to longer-term earnings growth potential 

is attractive. 

We keep an emphasis on high-quality companies that 

generate sustainable growth and solid cash flows. These 

stocks have become more expensive on a preference for 

low-risk stocks. But, in a low interest-rate environment, solid 

cash flows become more valuable, so these stocks might 

keep an upside potential. 

Valuation gap (trailing price/earnings ) between the US and Europe 

30 

24 

18 

11 

5 

Aug 05 May 06 Feb 07 Nov 07 Aug 08 May 09 Feb 10 Nov 10 Aug 11 May 12 

Source: Bloomberg 

MSCI USA - price/earnings 

MSCI Europe - price/earnings 

Sustainable earnings growth stocks to stay expensive: 

they are driven by long term competitiveness trends, 

independent of economic growth 

Investors are prepared to pay a premium for solid cash 

flows in a low-interest rate environment 

This can be found in Industrials and Healthcare sectors, 

in emerging markets exposure and through a thematic 

approach

Equity market – 

Sector outlook 

Digging for sustainable earnings growth 

Repositioning for the equities overweight can be done by 

adding exposure to (sub-) sectors and companies with 

sustainable cash flows. We favour Healthcare, mainly 

biotechnologies (see the next two pages). For Industrials 

(overweight), we prefer the most stable Commercial Services 

& Supplies as well as Capital Goods, which benefits from 

infrastructure investments, green energy and lower gas 

Overweight - Neutral - Underweight 



Sybren Brouwer – Global Head Equity Research 

prices. Consumer-related top picks are Luxury Goods, 

Consumer Services and Household & Personal Care. 

Integrated Oils, Chemicals and Software & Services also have 

stable cash flows and sustainable growth. Financials are 

upgraded to neutral on reduced systemic risk and expected 

clarification on eurozone banking union and supervision. 

Sector Sub-sector Top picks Comments 

Energy 

Oil Services 

Haliburton, Saipem 

Should rally from low valuations when sentiment up 

Integrated Oils 

Royal Dutch Shell, Chevron 

High dividend yield protects against volatility 

Exploration & Production 

CNOOC, Whiting Petroleum 

Prices: limited potential for oil; struct. weak natgas 

Refining 

Valero 

US: strong refining margins; Europe: overcapacity 

Materials 

Chemicals 

BASF, Agrium, Lanxess, Incitec Pivot 

Low US gas prices favourable 

Metals & Mining 

Rio Tinto, Freeport, Barrick Gold 

Prefer miners, scarce metals, bulk commodities. 

Construction Materials 

Heidelberg Cement 

Austerity is coming its way 

Paper & Forest 

International Paper 

Demand & pulp spot more stable; weak seasonality 

Industrials 

Commercial Services & Supplies Intertek, Bureau Veritas 

Rising regulation & continuing outsourcing 

Capital Goods 

ABB, EADS, Schneider, Caterpillar, Emerson, 

Deere, GE, H. Whampoa, MTR, China Comm Constr, 

Mitsui & Co, Keppel Corp. 

Short-cycle business pressured; 2013 could improve 

Transportation 

Growth in passenger traffic; fuel prices an issue 

Cons. Discretionary Consumer Durables 

LVMH, Richemont, adidas, Lennar, LG Electronics Housebuilders on profit threshold as sector turns 

Consumer Services 

Compass 

Shareholder return as a share price driver 

Retailing 

PPR, Target 

Sales trends strong but profits uncertain 

Automobiles & Components 

BMW, Volkswagen, Hyundai Motors, Michelin Slowing growth priced in, with upside on growth 

Media 

CBS, Walt Disney, WPP, Wolters Kluwer 

Higher content prices negative for big networks 

Consumer Staples Household & Personal Care 

Henkel, L'Oréal, Reckitt Benckiser, Estée Lauder, 

Procter & Gamble 

Preference for personal care on buoyant demand 

Food & Drug Retailing 

Tesco, CVS Caremark 

Structural & cyclical challenges remain 

Food, Beverages & Tobacco 

Nestlé, Nutreco, Pernod Ricard, Coca-Cola, 

MJN, Kraft Foods 

Solid earnings, stretched valuations; margin pressure 

Healthcare Healthcare Equipment & Services DaVita, Thermo Fisher, Fresenius SE 

Spending on essential care not in danger in US 

Pharmaceuticals, Biotech & Life Sciences Gilead Sciences, Celgene, Actelion, Pfizer, Roche M&A, cash generation very high, nice valuations 

Financials 

Diversified Financials 

American Express, JP Morgan, Wells Fargo Quality, defensive & diversified names = winners 

Insurance 

Allianz, Zurich FS, AXA, Prudential UK, AIA group Technical side improving a little 

Commercial Banks 

HSBC, Standard Chartered, ICBC, CCB 

Exposure to growth regions instead of Europe 

Real Estate 

Simon Property Group, Cheung Kong, 

Keppel Land, Unibail Rodamco 

Top quality names with assets in prime locations 

Information Tech Technology Hardware & Equipment EMC 

Cloud computing 

Software & Services 

Google, Nuance Communications, IBM 

Defensive characteristics, generally 

Semicond. & Semicond. Equipment Samsung Electronics 

Strong in smartphones & tablets; growth trends 

Telecom 

Telecommunication Services Vodafone, France Telecom, KPN, 

China Telecom, China Unicom 

Challenging environment, especially in Europe 

Utilities 

Renewable Utilities 

EDP Renovaveis, Enel Green Power 

Uncertainty over subsidies weighs 

Regulated/Multi-Utilities 

GDF Suez, Veolia Environment, NextEra Energy Muted fundamentals, recession in EU burdens

8 

Equity theme – 

Megatrend theme update 

Our new theme, Biological solutions, fits well with our current 

portfolio of themes. One of our main base assumptions for 

this portfolio is the growing demand for goods and services 

from the more affluent middle classes, especially in fast- 


Edith Thouin - Head Theme Research 

growing markets. Alternative supplies are needed and these 

have to be sufficient, renewable and environmentally friendly. 

A new wave of technologies will change the way we 

consume and produce in the years to come. 

Theme Launch Investment case Key components Current theme 

recommendation 

New age of 

services 

No nonsense 

consumer 

Green 

infrastructure 

Big is beautiful 

Filling the 

factory 

Taking care 

European gems 

Quality counts 

The return of 

the consumer 

Mergers and 

Acquisitions for 

a reason 

Pricing power 

High-quality 

dividends 

The care 

industry 

Step 

on the gas 

3Q08 

2Q09 

3Q09 

4Q09 

1Q10 

2Q10 

3Q10 

4Q10 

1Q11 

2Q11 

3Q11 

4Q11 

1Q12 

2Q12 

As global trade expands, the need for transport, 

storage and inspection of goods is accelerating. 

Consumers are debt laden and are working at ways 

to maintain their living standards but “at a discount”. 

Long-term elements (environment friendliness and 

energy savings) and short-term reasons (stimulus 

programmes) benefit “green” infrastructure 

Investors focus on large companies that can expand in 

emerging markets (EM) to become real global players. 

As demand picked up again and inventories were at 

historical lows, it was time to get production going. 

The rising and changing needs of consumers in EM 

as they move up Maslow’s triangle of needs. 

Large European expertise and brand names are in 

demand with the rising middle classes worldwide, 

helped by a weakening euro. 

As production in EM moves up the value chain and 

global trade keeps on growing, the need for global 

quality standards, including environmental and 

safety regulations, is on the rise. 

With the recovery (in the US and Asia) gaining 

pace, consumer spending is leading. 

Companies are cash rich. Vertical integration and 

scarcity issues lead to more acquisitions. 

In an age of austerity, pricing power is proving 

paramount for companies to maintain margins and 

secure long-term earnings growth. 

In an uncertain and low interest rate environment, 

investors focus on dividend-paying stocks as a 

stable source of yield. 

Focus on health and wellness trends, relaxing 

in a high-stress environment. 

Shale gas revolution in the US will have profound 

impact on different companies. 

Vopak, SGS, Intertek, Burlington Northern 

(taken over by Berkshire Hathaway) 

Amazon, Fielmann, Ryanair, Tesco, 

Walmart, McDonalds, H&M 

Nalco, Syngenta, DSM, Arcadis, Veolia, 

Flour 

Samsung Electr., HSBC, Roche, Oracle, 

Coca-Cola, LVMH, Caterpillar, Walmart 

ASML, Caterpillar, Siemens, Imtech, 

Arcelor Mittal, ABB, Aalberts 

Samsung Electr., Adidas, Genting B., Mead 

Johnson, Heineken, Prudential, Intertek 

BASF, DSM, Daimler, Fresenius, L’Oréal, 

Intertek, Sanofi, Siemens 

Mead Johnson, Bureau Veritas, Thermo 

Fischer, Symrise, Vopak, Fresenius, 

DSM, Keppel Corp. 

Adidas, Apple, Daimler, Fedex, Randstad, 

Simon Property, Swatch, Wereldhave 

Mead Johnson, Mosaic, Gea, Symrise, 

Starbucks, Actelion, Macarthur Coal, Qiagen 

Apple, Philip Morris, Allergan, Lanxess, 

Coca-Cola, Nestle, Reckitt Benckiser, 

Starbucks 

BASF, DSM, Philp Morris Intl., Royal Dutch, 

Roche, AT&T, Nestle, Bristol Myers, 

SingTel, Vodafone 

Allergan, Estee Lauder, DSM, 

WeightWatchers, Starbucks, L’Oréal, DaVita 

Dow Chemical, BASF, LyondellBasell, 

Intl. Paper, Kinder Morgan 

Strong buy 

Closed 

Feb. 2010 

Buy 

Buy 

Closed 

May 2011 

Strong buy 

Buy 

Strong buy 

Hold 

Buy 

Buy 

Strong buy 

Strong buy 

Strong buy

New equity theme – 

Biological solutions 

The world’s resources are being depleted faster than ever by 

a rapidly rising global population. 

Solutions to increase or find alternatives to these supplies 

have to be found. Dependence on non-renewable and often 

environmentally damaging material from fossil organisms 

has to be replaced by living and replaceable resources. 

And that is just what science has been doing over the last 

decade, although most people are unaware of this. 

New discoveries on how biological organisms can be used 

as alternatives to goods like oil and oil-based products, 

chemical-based pharmaceuticals and a new source of 

productivity in agriculture are now making a real difference. 

Though this overview may seem very diverse, the R&D 

efforts and findings of these very different industries are 

being integrated (also through acquisitions) into a new breed 

of biotechnology corporate giant, active in most of the 

emerging biotechnology industries listed below. They are 

moving from the polluting chemicals industry to green and 

sustainable solutions. Examples of the best in class in this 

Amgen 

Celgene 

Gilead 

Roche 

DuPont 

DSM 



Edith Thouin - Head Theme Research 

trend are Ecolabs, DuPont, Amgen, Celgene and Gilead 

Sciences of the US, DSM in the Netherlands, Roche and 

Syngenta of Switzerland, and BASF of Germany. 

Such biotechnology can be grouped into four “colours”. 

Red biotechnology is the discovery and introduction of new, 

biological drugs and diagnosis techniques based on the 

many new insights into human DNA. 

White biotechnology stands for industrial applications using 

organic raw materials to make biodegradable plastics 

replacing oil-based products made with highly polluting 

chemicals. 

Green biotechnology enables the farmer, through modifying 

plant seeds, to achieve much larger and more predictable 

harvests. 

Blue biotechnology uses enzymes to clean much needed water 

supplies. 

Monsanto 

Syngenta 

DuPont 

Ecolab 

DSM

10 

Bond market outlook 

The euro is irreversible 

(Mario Draghi, London, 26 July 2012) 

Strong push from the ECB 

Against the backdrop of the eurozone debt crisis, EU 

policymakers – determined to avoid disaster – will make 

huge efforts to avoid unwelcome jumps in yield, given 

that the path to recovery remains critical. 

Having recently put forward a conditional government bond 

purchasing program, the ECB has in effect increased 

eurozone rescue facilities and bought more time for dealing 

with the sovereign debt crisis. This promise to intervene to 

tame the European peripheral bond market is under strict 

policy conditions and does not rule out the possibility of 

Spain and Italy asking for external support. Rating agencies 

could interpret this positively and politicians have more time 

for reforms. The effectiveness of these policy actions will 

remain under the vigilant scrutiny of capital markets but 

reduces the risk of excessively high yields in peripheral 

bonds. 

As capital markets reduce speculation against countries 

dropping out of the single currency, potential flows from 

safe havens are a risk for long-term Bund holders. 

United States: Spellbound by quantitative easing 

For the US, the dual threats of European financial turmoil and 

the end of tax breaks at the start of 2013 (the “fiscal cliff”) will 

keep the Fed focused on preventive easing. This will keep 

yields low in the coming months and maintain the quest for 

yield across fixed-income markets. Fed policymakers will only 

strongly act if the cost outweighs the benefits, balancing risks 

of being too accommodative. This does not make the yield 

curve attractive (see graph). 

Governments: 

Underweight 

Corporates: 

Overweight 

Core government bond yields are 

risky at current levels 

ECB bond purchases aim to reduce 

excessive yields on peripheral 

government bonds 

Cash-rich firms are stronger than 

many governments. The search for 

yield supports tighter credit-yield 

spreads 

Market liquidity remains limited 


Roel Barnhoorn – Global Head Bond Strategy 

Asia 

Asian policy makers are trying to maintain growth 

momentum and to avoid a boom-bust cycle in real estate. 

As Asia has no debt crisis, average credit quality for both 

corporates and states remains strong with limited debt 

leverage, notably in Korea. 

Negative US and German real yield curves 

Asset class: Underweight Fundamental view Drivers Recommendations 

0% 

-0,8% 

-1,5% 

-2,3% 

-3,0% 

2Y 3Y 5Y 7Y 10Y 

Source: ABN AMRO Private Banking and Bloomberg 

Low risk appetite 

Investors looking for yield 

Low default rates supported 

by balance sheets 

US Germany 

Neutral duration 

Preference for Belgian and French; take 

profits on core government bonds 

Take profits on expensive investment grade 

Recommendations are in our Credit 

Handbook, Covered Bond Handbook and 

Monthly Bond Opportunities 

US high-yield hedge in EUR 

Asian corporate bonds for 

emerging-market allocation

Bond portfolio allocation 

Real yield 5 year reference 

+3.52% US high yield 

+1.39% Emerging markets 

+0.92% Average investment grade 

-1.48% US Treasury 

-1.72% Germany 

Repositioning 



Roel Barnhoorn – Global Head Bond Strategy 

Point of low return 

Conditions in capital markets have generally improved, with 

government bond yields at (or near) post-crisis lows. Credits, 

particularly high-yield bonds, are expensive (absolutely and 

against investment-grade bonds). With global monetary easing, 

we expect continued performance for lower grade corporate 

credits. Low, core government yields and even negative real 

yields (see graph) make these bonds very sensitive to interest 

rate variations, and so incompatible with most bond investors’ 

low risk expectations. 

Repositioning into lower credit quality names 

We have shifted our focus from high quality into yield 

enhancement, reducing the shares of core government 

and high-quality corporate bonds. 

Lower investment-grade and non-investment grade bonds offer 

opportunities, and we may diversify into convertible bonds this 

quarter. Risks of US corporate defaults should stay tame, although 

peripheral EU corporate investment-grade bonds could suffer in 

the debt crisis, with some falling below investment grade, 

presenting selective value in non-financial European high yield. 

Emerging market bonds are a key source of yield enhancement 

and issuer diversification. With currency competition, we prefer 

US and EUR bonds. At equivalent ratings, emerging market 

corporate bonds are more attractive than developed countries’. 

Finally, money flows are attracted by yield pick-up, 

favouring our asset allocation in lower investment-grade, 

US non-investment grade and emerging market bonds 

(with a tilt to Asian credits). 

Recommended bond portfolio duration: Neutral 

12,5 % 

12,5 % 

25,0 % 

50,0 % 

High-grade government and supranational 

Investment-grade credits 

Emerging-markets debt (funds) 

US high-yield credits (funds)

12 

Currency outlook 

USD appreciation delayed till US political uncertainty lifts 

We have been constructive on the USD for several quarters 

on the improvement in the longer-term fundamental outlook 

and the attractive valuation of the currency. According to 

purchasing power parities of the G11 currencies, only the SEK 

is more undervalued than the USD. Although the longer-term 

picture remains one of USD strength, for instance, the USD 

presents good value on a trade-weighted basis (see the graph), 

some short-term headwinds may have an important bearing 

on USD market sentiment. 

First, the Federal Reserve is committed to prolonging its 

exceptionally loose monetary policy. Its dual mandate of full 

employment and price stability is biased to decisively 

supporting the economy. Official interest rates are not 

expected to rise in the next two years, barring any substantial 

improvement of the US job market. With that in mind, real 

interest rates will remain negative or at ultra low levels along 

the yield curve for the foreseeable future and represent a 

drag on the USD. Second, despite the risk of a resurgence of 

the eurozone debt crisis, the market in Q4 will be more 

sensitive to US political uncertainty created by the 

presidential election, the end-of-year US fiscal cliff (a possible 

fiscal consolidation of some 4% of GDP) and the debt ceiling. 

We are therefore more cautious on the USD and see less 

upside in Q4 across the board. 

For the EUR, variables to watch are political developments 

and economic data. On the latter, expectations are very low, 

laying the ground for the market to be more sensitive to 

positive than negative news, resulting in EUR crosses 

performing well. 


Georgette Boele – Coordinator FX and Commodity Strategy 

Commodity-based and emerging market currencies will be 

highly correlated with the fate of the Chinese economy. 

Originally, we thought that the economy would bottom out in 

Q3 on the back of the global recovery and policy stimulus, but 

we will probably have to wait until end-2012, prolonging the 

uncertainty around China’s economic growth path, capping 

the upside for this quarter in these currencies. 

US Real effective exchange rate 

135 

130 

125 

120 

115 

110 

105 

100 

95 

90 

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 

Source: Bank of International Settlements, Bloomberg 

Asset class Group Economics fundamental view Recommendations ABN AMRO Private Banking 

Currency 

Short-term drivers to be a headwind for the USD 

Slightly positive EUR view against European crosses 

Volatility is below historical norms 

Accumulate USD in the 1.25–1.30 range 

Uncertainty on China to be a headwind for commoditybased 

and emerging market currencies in the first half of Q4 

Neutral 

2006 2007 2008 2009 2010

Forecasts 

Knowing what is possible is the 

beginning of happiness 

George Santayana 

Our central scenario is that the world economy will slowly 

regain momentum in 2013. The sum of higher than unusual 

uncertainties will keep central banks united in maintaining 

historically low interest rate environments. 

Macro (%) Equities 

5 Sep 2012 

Real GDP Growth 2013 Inflation 2013 

ABN Market ABN Market 

AMRO view AMRO view 

US 2.0 2.1 1.7 2.0 

Eurozone 0.2 0.3 1.4 1.7 

UK 1.3 1.4 1.8 1.9 

Japan 1.4 1.4 0.1 0.0 

Other countries* 2.5 2.3 1.9 1.8 

Em Asia 6.9 7.0 5.3 4.4 

Latin America 4.3 3.8 6.1 6.5 

EEMEA** 3.1 3.3 4.9 5.9 

World 3.5 3.5 3.8 3.4 

All forecasts are annual averages of quarterly year-on-year changes. 

* Australia, Canada, Denmark, New Zealand, Norway, Sweden and Switzerland 

** Emerging Europe, Middle East and Africa 

Source: ABN AMRO Group Economics, Consensus Economics, EIU 

Interest rates and bond yields (%) 

Sep 2012 

United States 

Dec 2012 Mar 2013 Jun 2013 Sep 2013 

US Fed 0.25 0.0–0.25 0.0–0.25 0.0–0.25 0.0–0.25 

3- month 0.41 0.30 0.30 0.30 0.30 

2- year 0.07 0.05 0.05 0.10 0.20 

10- year 1.57 1.60 1.60 1.90 2.20 

Germany 

ECB Refi 0.75 0.75 0.75 0.75 0.75 

3- month 0.27 0.30 0.30 0.40 0.50 

2- year -0.04 0.00 0.10 0.20 0.35 

10- year 1.40 1.40 1.50 1.70 2.00 




Alternative scenarios, such as a major euro crisis and 

anaemic long-term growth, are envisaged but are attributed 

low probabilities that will likely decline as long as EU 

reshaping keeps going and the US economy picks up pace. 

Spot Direction Forward 

5 Sep 2012 3 months P/E 2013 

S&P 500 1405.2 ▼ 12.2 

Euro Stoxx 50 2450.0 ▲ 9.4 

FTSE-100 5692.0 ▲ 9.9 

Nikkei 225 8775.5 ▼ 12.3 

DAX 6937.5 ▲ 9.6 

CAC 40 3421.1 ▲ 9.6 

AEX 330.1 ▲ 9.7 

Hang Seng Index 19429.9 ► 9.5 

Shanghai SE Comp. 2043.6 ▲ 8.0 

Straits Times Index 3011.6 ► 12.8 

Currencies 

FX pair 4 Sep 2012 Dec 2012 Mar 2013 Jun 2013 Sep 2013 

EUR/USD 1.26 1.25 1.25 1.20 1.15 

GBP/USD 1.59 1.56 1.56 1.50 1.42 

EUR/GBP 0.79 0.80 0.80 0.80 0.81 

USD/CHF 0.95 0.98 0.98 1.04 1.09 

EUR/CHF 1.20 1.22 1.23 1.25 1.25 

USD/JPY 79.39 80.00 82.00 82.00 85.00 

EUR/JPY 98.90 100.00 102.50 98.40 97.75 

USD/CAD 0.99 0.98 0.98 1.00 1.00 

AUD/USD 1.03 1.05 1.05 1.03 1.00 

NZD/USD 0.80 0.82 0.82 0.80 0.78 

EUR/NOK 7.31 7.50 7.50 7.25 7.00 

EUR/SEK 8.42 8.50 8.50 8.25 8.00

14 

Hedge funds 

Looking for arbitrage opportunities 

while managing risk 

Hedge funds have brought down their risk exposures and 

increased cash holdings as they expect a range-bound but 

choppy market environment ahead, as macro policy and 

politics dominate. This cautious positioning has moderated 

the risk–return profile of hedge funds, as illustrated by the 

volatility of the HFRX Global Hedge Fund Index. It has come 

down in recent months and is now comparable to the bond 

risk profile (see graph). 

6-month rolling volatility HFRX 

Volatility (%) 

9 

8 

7 

6 

5 

4 

3 

2 

1 

Jul 2004 Jul 2006 Jul 2008 Jul 2010 Jul 2012 

Source: BIS, Bloomberg 

The higher cash holdings should enable hedge funds to 

re-enter markets quickly if major opportunities arise. 

The expected market environment favours hedge funds 

pursuing pure arbitrage strategies rather than those which 

rely heavily on directional exposure. The emphasis is on 

alpha generation, not market beta. Hedge funds pursuing 

fixed-income, credit and merger arbitrage strategies should 

generate a steady stream of returns with low volatility. 

Although range-bound markets are rarely beneficial for CTA 

and global macro funds, we think that these strategies should 

be part of a hedge fund portfolio as they can offer true decorrelation 

and portfolio protection in case the eurozone debt 

crisis flares up again. But the reverse is also true – if we see a 

favourable outcome in Europe and the US, then CTA and 

global macro funds are best positioned to profit from the 

resulting positive market momentum. 


Olivier Couvreur – CIO Multimanager 

Erik Keller – Senior Hedge Fund Analyst 

We maintain our overweight recommendation for hedge 

funds, as managers have the flexibility and skills to take 

advantage of unpredictable and sideways-moving markets. 

A portfolio of hedge funds blending fixed-income and merger 

arbitrage strategies with tactical trading strategies, like CTA 

and global macro funds, is the best mix for the months 

ahead. Fund of hedge funds primarily investing in fixedincome 

and credit arbitrage strategies are also a good 

alternative to traditional bond investments in the current 

low-yield environment. 

Hedge fund strategies: 

Positive on global macro, CTA, relative value and eventdriven; 

Negative on long/short equity. 

Global macro: Global macro and CTA hedge funds are the 

only strategies that can provide true de-correlation in times 

of market stress or a prolonged rebound in risk assets. 

Relative value: A slow growth environment strongly favours 

credit. From a long-only perspective, the credit trade might 

seem crowded but for long/short managers ample arbitrage 

opportunities remain. 

Event-driven: We prefer multi-strategy event-driven funds 

that have the flexibility to take advantage of the various substrategies: 

merger arbitrage, special situations and distressed 

securities. 

Long/short equity: Many long/short equity hedge funds are 

struggling in the current environment. Only (sector) 

specialised equity markets’ neutral hedge funds can generate 

decent returns.

Commodity outlook 

Balancing forces 

The holiday season in much of the industrialized world – 

which leads to reduced liquidity – proved supportive for 

commodity markets. The Commodity Research Bureau index 

rallied by 18% between mid-June and mid-September (CRB), 

as overall sentiment in financial markets improved; oil prices 

rallied on renewed tensions in the Middle East (Iran and 

Syria) and supply-related concerns; grain prices showed an 

impressive rally on drought in crop-growing areas; and 

precious metal prices moved higher on expectations of more 

quantitative easing by the Federal Reserve. One headwind 

was a downward adjustment in expectations for Chinese 

growth, hurting base, ferrous and some precious metals. 

The rally in commodity markets will unlikely turn into another 

massive bull run for several reasons: events in the fourth 

quarter, such as central bank policy announcements, the 

evolving EU crisis, US elections and the US fiscal cliff could 

introduce uncertainty into the market; oil prices may be 

supported near term by increased demand, supply and geopolitical 

concerns but most of these drivers will peter out 

during the quarter; and crop-supportive weather prospects 

and higher inventories should put downward pressure on 

agricultural prices. Loose monetary policy is targeted and 

should have limited impact on commodity prices. But China’s 

economic outlook will likely pick up in Q4 and this should 

support base and ferrous metals. 

The commodity market is typically a relatively small asset 

class with its own dynamics. Nevertheless, overall risk 

appetite on financial markets also plays a crucial role and 

could lead to bursts of volatility in the fourth quarter (see 

graph). More monetary stimulus might result in a moderate 



Georgette Boele – Coordinator FX and Commodity Strategy 

pick-up of economic growth, while commodity-specific 

dynamics may cap the upside. This could lead to erratic 

moves towards the end of the year. The fundamental case 

and central bank policy are not supportive enough to become 

positive while risks to the downside remain. 

CRB (lhs) and CRB (rhs) volatility 


Commodities 

Group Economics has a neutral view on price 

Keep commodity index exposure 

Underweight 

development, as the supply–demand factors balance out 

Underweight commodities in portfolios because of riskreturn 

preference for other asset classes 

500 

400 

300 

200 

100 

Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 


CRB Index 

6-month Rolling Volatility (annualised) 

50% 

40% 

30% 

20% 

10% 

Be careful on commodities, as the recent run-up in prices 

and potential jumps in volatility make them risky

16 

Property 

Capturing dividends 

Listed real estate is overweight in our asset allocation and 

offers opportunities, as risk–return expectations for listed 

property stand between those of bonds and equity. Real 

estate in our focus areas – mainly retail, renting and to a 

lesser extend residential – generates quite stable income, as 

tenants usually have long-term contracts and rents are linked 

to inflation, which is expected to come down only slightly. 

On top of that, the deleveraging process that started after the 

onset of the global crisis continues, with loan-to-value ratios 

declining and balance sheet quality improving. 

We focus on top-tier companies that can generate dividend 

yields of 3-4% in the current slow-growth and low-interest 

rate environment, which could imply paying a premium for 

investments in the best locations, regions and categories. 

These companies maintain their competitive advantage in the 

current low sovereign yield environment as they can 

refinance at lower rates. We avoid the lower-quality real 

estate companies that offer double-digit yields as these 

dividends could be at risk. This is especially important for 

Europe, where vacancy rates are low in prime locations and 

limited new supply is coming to the market, while rents are 

falling in secondary locations on increasing vacancies and 

hardly any demand from occupiers. 

We recognise the opportunities globally offered by the sector. 

Regionally we prefer the United States (overweight) to Asia 

(neutral) and Europe (underweight). Economic headwinds 

and banking refinancing will make it hard for European 

property stocks (investments in real estate were down by 

27% year-on-year in Q1 2012). In contrast, US real estate 

investment trusts (REITs) offer positive earnings momentum 

as regulators require them to increase their dividend 

payments by 10–15% in the coming year. The US market 


Manuel Hernandez – Property Specialist 

showed a solid start in 2012, but volume growth is levelling 

off, indicating a mature phase in the recovery. This is mostly 

in the retail sector, with vacancy rates at 6.9% and rental 

levels stable. 

In Asia, the average debt ratio for property companies is 

around 20%, much lower than in Europe and the US. China 

and Hong Kong drive Asia ex-Australia and ex-Japan. With 

two rounds of rate cuts since June by China’s central bank, 

the chances of a soft landing for that housing market have 

increased. 

Real estate dividend yields (%) 

12,5 % 

10,0 % 

7,5 % 

5,0 % 

N. America 

Europe 

Asia 

2,5 % 

Nov 2007 Nov 2008 Nov 2009 Nov 2010 Nov 2011 



Overweight 

US REITs: These offer positive earnings momentum as 

regulators require them to increase dividends 

Overweight: North America 

Asia: The housing market in China and Hong Kong 

drives performance 

Europe: Economic headwinds and banks’ re financing 

weigh 

Neutral: Asia 

Underweight: Europe

Private equity 

A momentum of its own 

Five years into the financial crisis, private equity continues 

growing steadily, and has total managed assets of more than 

$3 trillion. When mark-to-market became the practice for 

valuing investments in 2009, it hit the market values of 

investment companies, but their valuations have since 

improved. This is partly because private equity has a long 

investment horizon, and expectations of short-term gains are 

out of tune with the process of adding value over the entire 

holding period. Political uncertainties and regulatory 

requirements may affect returns across regions, hence the 

need to build a well-balanced portfolio. Europe continues to 

face uncertainties and we favour private equity funds 

targeting resilient companies in downturns, regardless of 

location worldwide. 

Distressed 

Economic stresses continue to create opportunities. Much 

debt has also been refinanced over the past two years and 

maturities extended with risk of default in 2013–2017. 

Buyouts 

Smaller companies could be early beneficiaries in an 

economic upturn, while operational and strategic 

improvements have a larger impact in the mid-cap segment. 

Transaction volume is recovering from 2009 with average 

quarterly transactions of more than 25, but volumes less in 

aggregate. We are now in a similar phase to 2004 (a good 

year). Economic value to gross earnings multiples for 2012 

are just under 8x (they were 7.2x in 2004) – entry valuations 

should ideally stay at 7.5x. Many high-quality buyout 

managers are expected to raise new funds in the next two or 

three years after a relatively slow fund-raising environment. 



Olivier Palasi – Head Private Equity 

Mezzanine 

Mezzanine is a debt instrument that can offer equity-like 

gross returns with debt-like risks. High cash coupons 

generate near-term cash income and equity co-investment 

allows mezzanine investors to experience an upside. There 

are many opportunities for mezzanine, as these private 

placements are competing with traditional public financing in 

the large and mid-cap space. This strategy is suitable for riskaverse 

clients looking for a first entry into private equity. 

Secondary market 

Public market corrections and the slowdown in exit activity 

have kept downward pressure on prices. Sellers may be 

reluctant to sell portfolio companies but public market 

volatility could spark additional sales from banks and 

investors with a weak hand. 

Venture 

We favour growth equity relative to early stage capital. Longterm 

technology and healthcare trends bring opportunities – 

reforms in US healthcare will boost investments in related 

services.

18 

Asset allocation 

New positioning to benefit from the 

change of market dynamics 

Take advantage of supportive actions 

The Global Investment Committee of ABN AMRO Bank has 

increased its exposure to risk assets, mainly with an 

overweight in equities and real estate. This is because the 

reduction of systemic risk, central banks’ strong reflationary 

policies, and resilience of corporate earnings can lift equities 

in anticipation of a more sustainable economic path on a 

12-month horizon. Hyper-stimulative policies have made 

core government yields unattractive, justifying disinvestment 

from core government bonds. 

Among equities, we added a preference for Europe at the 

expense of the US and remain overweight in emerging 

markets and negative Japan. In bond markets, we decided to 

take profits on the most expensive part in our current bond 

allocation by selling half of our current allocation in core 

government bonds in the eurozone and to reallocate the 

proceeds in line with our overweight in corporates, high-yield 

and emerging market debt. On the alternative investment 

side, beside the overweight in real estate, we maintain a 

positive view on hedge funds both for exposure to skilled 

managers and as insurance against adverse market 

gyrations. 

Audited performance of our Tactical asset allocation vs. its Strategic asset allocation 

Performance: Adding to absolute return 

All our risk profile model portfolios benefited from recovery 

in asset prices during Q3. They were rewarded for their active 

exposure to global equities – in Europe particularly – and to 

credit markets at a time when the general opinion was 

unfavourable, given Europe’s risks. But being underweight 

commodities, we did not benefit from the recovery there. 

To take one example, a balanced portfolio (profile 3) gained 

6.78% in USD from the start of the year to early September 

over-performing the benchmark by 90 basis points, and 

gained 8.75% in EUR, almost the same as the benchmark. 

Risks: First signs that economic disappointments may diminish 

Based on separate calculations, these changes have 

increased the total risk exposure of risk profile 3 from 7% to 

8% (compared with 6.5% for its benchmark). The benefit of 

multiple sources of diversification in the various segments of 

the bond and equities markets mitigates the overall equity 

market risk (19%). Also, reduced market volatility in equity 

assets and the improvement in the grassroot businesses 

(small businesses and residential sector) in the US are 

creating less uncertain conditions. 

EUR USD 

22 May 2003 to 7 Sep 2012* 2012 YTD (7 Sep) 22 May 2003 to 7 Sep 2012* 2012 YTD (7 Sep) 

Strategic Tactical Excess Return Strategic Tactical Excess Return Strategic Tactical Excess Return Strategic Tactical Excess Return 

Profile 1 50.50 62.23 11.72 6.05 6.70 0.65 53.57 65.81 12.23 1.65 4.23 2.58 

Profile 2 52.87 64.00 11.14 7.71 7.87 0.15 57.29 68.20 10.91 4.11 5.74 1.63 

Profile 3 66.88 87.36 20.48 8.91 8.75 -0.16 75.31 91.55 16.24 5.89 6.78 0.90 

Profile 4 69.29 89.25 19.96 10.48 9.85 -0.64 79.12 93.96 14.84 8.19 8.13 -0.06 

Profile 5 76.88 100.52 23.64 12.04 10.94 -1.09 87.13 105.42 18.29 10.41 9.48 -0.93 

Profile 6 78.69 101.79 23.11 13.18 11.65 -1.53 89.86 107.18 17.32 12.02 10.42 -1.60 

* Profiles 1 and 2 are linked to the "old" Conservative profile, profiles 3 and 4 to the "old" Balanced profile and profiles 5 and 6 to the "old" Growth profile.

– continued 

*Recommended duration; Neutral. Benchmark: Bank of America, Merrill Lynch Government Bonds 1-10 years. 

**Foreign exchange exposure; only equity markets and a small portion of alternative investments are exposed to foreign currencies. 



Gerardo Amo – Global Head Quantitative and Risk Analysis 

Asset allocation of model portfolios showing EUR/USD risk profiles in %, 

starting with our most conservative Profile and ending with Profile 6, which is most exposed to market risks. 

Asset allocation Profile 1 Profile 2 

Asset class Strategic Tactical Deviation Strategic Tactical Deviation 

Neutral Min. Max. Neutral Min. Max. 

Money markets 5 0 60 18 +13 5 0 70 11 +6 

Bonds* 90 40 100 74 -16 70 30 85 58 -12 

Equities 0 0 10 0 15 0 30 18 +3 

Alternative investments 5 0 10 8 +3 10 0 20 13 +3 

Funds of hedge funds 5 8 +3 5 8 +3 

Real estate 0 0 3 5 +2 

Commodities 0 0 2 0 -2 

Total Exposure** 100 100 100 100 




Money markets 5 0 70 6 +1 5 0 70 6 +1 

Bonds* 55 20 70 46 -9 35 10 55 25 -10 

Equities 30 10 50 35 +5 50 20 70 56 +6 

Alternative investments 10 0 20 13 +3 10 0 30 13 +3 

Funds of hedge funds 5 8 +3 5 8 +3 

Real estate 3 5 +2 3 5 +2 

Commodities 2 0 -2 2 0 -2 

Total Exposure** 100 100 100 100 




Money markets 5 0 70 2 -3 5 0 60 0 -5 

Bonds* 15 0 40 11 -4 0 0 25 0 

Equities 70 30 90 77 +7 85 40 100 90 +5 

Alternative investments 10 0 30 10 10 0 30 10 

Funds of hedge funds 5 5 5 5 

Real estate 3 5 +2 3 5 +2 

Commodities 2 0 -2 2 0 -2 

Total Exposure** 100 100 100 100

20 

Contributors 

Members of the ABN AMRO Bank Global Investment Committee 

Didier Duret didier.duret@ch.abnamro.com Chief Investment Officer Private Banking 

Gerben Jorritsma gerben.jorritsma@nl.abnamro.com Head Discretionary Portfolio Management Strategy 

Han de Jong han.de.jong@nl.abnamro.com Chief Economist 

Arnaud de Dumast arnaud.de.dumast@fr.abnamro.com Head Investments Private Clients France 

Wim Fonteine wim.fonteine@nl.abnamro.com Senior Investment Specialist and Advisory Delegate 

Economic Bureau 

Nick Kounis nick.kounis@nl.abnamro.com Head Macro Research 

Georgette Boele georgette.boele@nl.abnamro.com Coordinator FX and Commodity Strategy 

Roy Wellington Teo roy.teo@sg.abnamro.com FX Strategist Asia 

Bond Research & Strategy Team 

Roel Barnhoorn roel.barnhoorn@nl.abnamro.com Global Head Bond Strategy 

Agnes Pellé-Charron agnes.pelle.charron@ch.abnamro.com Credit Analyst 

Carman Wong carman.wong@hk.abnamro.com Head of Emerging Bond markets 

Grace M.K. Lim grace.m.k.lim@sg.abnamro.com Emerging market Bond Analyst 

Jeroen van Herwaarden jeroen.van.herwaarden@nl.abnamro.com Credit Analyst 

Equity Research & Strategy Team 

Sybren Brouwer sybren.brouwer@nl.abnamro.com Global Head Equity Research 

Thomas Helfer thomas.helfer@ch.abnamro.com Head Equity Research US market, Materials 

Daphne Roth daphne.roth@sg.abnamro.com Head Asia Equity Research, Australia, EM Asia 

Edith Thouin edith.thouin@ch.abnamro.com Head Theme Research, Materials, Healthcare 

Markus Glockenmeier markus.glockenmeier@bethmannbank.de Equity Analyst Telco & Utilities, Europe 

Yunpu Li yunpu.li@bethmannbank.de Equity Analyst Consumer Staples, Latin America 

Alfred Schoengraf alfred.schoengraf@bethmannbank.de Equity Analyst Industrials 

Beat Lang beat.lang@ch.abnamro.com Equity Analyst Consumer Discretionary 

Jens Zimmermann jens.zimmermann@ch.abnamro.com Equity Analyst Energy, CEE, Middle East & North Africa 

Margareta Jonker margareta.jonker@nl.abnamro.com Equity Analyst Netherlands 

Françoise Cespedes francoise.cespedes@fr.abnamro.com Equity Analyst Neuflize OBC Inv. French Banks 

Emilie Bruneau emilie.bruneau@fr.abnamro.com Equity Analyst Neuflize OBC Inv. European IT 

Gustavo Guimaraes gustavo.guimaraes@fr.abnamro.com Equity Analyst Neuflize OBC Inv. US Technology 

Chiu Yen Neo chiu.yen.neo@sg.abnamro.com Equity Analyst Japan, Singapore 

Carol Chau carol.chau@hk.abnamro.com Equity Analyst Korea, Hong Kong, Taiwan 

Ralph Wessels ralph.wessels@nl.abnamro.com Equity Analyst Financials 

Ivy Pan ivy.pan@hk.abnamro.com Equity Analyst China 

Alternative Investments 

Olivier Couvreur olivier.couvreur@fr.abnamro.com CIO Multimanager, Hedge Funds 

Olivier Palasi olivier.palasi@fr.abnamro.com Head Private Equity 

Manuel Hernandez Fernandez manuel.hernandez@nl.abnamro.com Property Specialist 

Erik Keller eric.keller@nl.abnamro.com Senior Hedge Fund Analyst 

Technical Analysis 

Aad Hoogervorst aad.hoogervorst @nl.abnamro.com Senior Technical Analyst 

Demis Bril demis.bril@nl.abnamro.com Senior Technical Analyst 

Quantitative Analysis and Risk Management 

Gerardo Amo gerardo.amo@ch.abnamro.com Global Quantitative and Risk Analysis 

Paul Groenewoud paul.groenewoud@nl.abnamro.com Quantitative and Risk Analyst 

Andrew Trythall andrew.trythall@nl.abnamro.com Quantitative and Risk Analyst 

Production Team 

Barbara Schiphorst barbara.schiphorst@nl.abnamro.com Global Coordination 

Jonathan Aspin j@j.aspin.name Editor Quarterly Outlook 

Christina Santore christina.santore@yahoo.com Editorial and Communication Support 

Christina Cain cgkcain@gmail.com Editor Supporting Documents 

André Heemstra andre.heemstra@nl.abnamro.com Editorial Support 

Kai A. Smith kai.smith@ch.abnamro.com IAC Project Manager 

Special thanks to Marijke Zewuster, Serdar Kucukakin, Arjen van Dijkhuizen, Casper Burgering, 

Aline Schuiling, Thijs Pons and Sien Tennekes

Disclaimers 

© Copyright 2012 ABN AMRO Bank N.V. and affiliated companies ("ABN AMRO"), Gustav Mahlerlaan 10, 1082 PP Amsterdam / P.O. box 283, 

1000 EA Amsterdam, The Netherlands. All rights reserved. This material was prepared by the Investment Advisory Centre (IAC) of ABN AMRO. It 

is provided for informational purposes only and does not constitute an offer to sell or a solicitation to buy any security or other financial 

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date indicated and are subject to change at any time without prior notice. The investments referred to in this material may not be appropriate or 

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electronic form, presentations, e-mail, SMS or WAP. 

US Securities Law 

ABN AMRO Bank N.V. is not a registered broker-dealer under the U.S. Securities Exchange Act of 1934, as amended (the "1934 Act") and under 

applicable state laws in the United States. In addition, ABN AMRO Bank N.V. is not a registered investment adviser under the U.S. Investment 

Advisers Act of 1940, as amended (the "Advisers Act" and together with the 1934 Act, the "Acts), and under applicable state laws in the United 

States. Accordingly, absent specific exemption under the Acts, any brokerage and investment advisory services provided by 

ABN AMRO Bank N.V., including (without limitation) the products and services described herein are not intended for U.S. persons. Neither this 

document, nor any copy thereof may be sent to or taken into the United States or distributed in the United States or to a US person. 

Other jurisdictions 

Without limiting the generality of the foregoing, the offering, sale and/or distribution of the products or services described herein is not intended 

in any jurisdiction to any person to whom it is unlawful to make such an offer, sale and/or distribution. Persons into whose possession this 

document or any copy thereof may come, must inform themselves about, and observe, any legal restrictions on the distribution of this document 

and the offering, sale and/or distribution of the products and services described herein. ABN AMRO can not be held responsible for any damages 

or losses that occur from transactions and/or services in defiance with the restrictions aforementioned. 

Sustainability Indicator Disclaimer 

ABN AMRO Bank N.V. has taken all reasonable care to ensure the indicators are reliable, however, the information is unaudited and subject to 

amendment. ABN AMRO Bank is not liable for any damage that constitute from the (direct or indirect) use of the indicators. The indicators alone do 

not constitute a recommendation in relation to a specific company or an offer to buy or sell investments. It should be noted that the indicators 

represent an opinion at a specific period of time considering a number of different sustainability considerations. The sustainability indicator is only an 

indication regarding the sustainability of a company within its own sector. 

Company disclosures 

ABN AMRO may beneficially hold a major shareholding or a significant financial interest of the debt of this company. ABN AMRO currently maintains a 

market in the security of this company and otherwise purchases and sells securities of this company as principal. ABN AMRO has received 

compensation for investment banking services from this company, its subsidiaries or affiliates during the previous 12 months. All disclosures made 

herein refer to ABN AMRO and its affiliates, including ABN AMRO Incorporated, which is regulated in the United States by the NYSE, NASD and SIPC. 

Personal disclosures 

The information in this opinion is not intended as individual investment advice or as a recommendation to invest in certain investments products. The 

opinion is based on investment research of ABN AMRO IAC. The analysts have no personal interest in the companies included in this publication'. 

Their remuneration for this work is not, was not and will not be related directly or indirectly to the specific recommendations or views expressed in this 

opinion.

Europe 

ABN AMRO MeesPierson 

Amsterdam 

Rico Fasel 

rico.fasel@nl.abnamro.com 


Antwerpen - Berchem 

Tom Van Hullebusch 

tom.van.hullebusch@be.abnamro.com 


Luxembourg 

Carlo Basten 

carlo.basten@lu.abnamro.com 

Bethmann Bank AG 

Frankfurt 

Michael Harms 

michael.harms@bethmannbank.de 

Banque Neuflize OBC S.A. 

Paris 

Wilfrid Galand 

wilfrid.galand@fr.abnamro.com 


Jersey 

Chris Chambers 

chris.chambers@uk.abnamro.com 


Guernsey 

Frank Moon 

frank.moon@gg.abnamro.com 

Middle East 


Dubai (DIFC) 

Saaish Sukumaran 

saaish.sukumaran@ae.abnamro.com 

Asia 


Hong Kong 

William Tso 

william.tso@hk.abnamro.com 


Singapore 

Stephen Evans 

stephen.evans@sg.abnamro.com 

Caribbean 

MeesPierson Private Banking 

Curaçao 

Edward Laurier 

edward.laurier@meespierson.com 

The Investment Advisory Centres are built around the work of investment specialists who provide financial advice and support for your key investment 

decisions. These specialists are assisted by a dedicated team of research & strategy analysts who provide in-depth coverage of the major financial 

markets and investment categories – currencies, equities, bonds and alternative investments. For all enquiries, please contact one of the branches above. 

If you are interested in our complimentary iPad app, please send an email to iResearch@nl.abnamro.com. 

We look forward to meeting you. 

www.abnamroprivatebanking.com 

Investment Advisory Centres

Didier Duret - RTL.nl

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