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Looking for opportunities in a dynamic environment
Author: Henk Luijten
Henk Luijten joined ING Investment Management (ING IM) in July 2000. As one of the financial editors of Investment Content Management (division of Marketing & Communications), he is responsible for the written communication of ING IM’s investment views and expertise to client servicing departments, ING Private Banking and to various client groups directly. He does so by writing a wide range of publications. Prior to joining ING IM, Henk worked as an editor and an investment analyst for MeesPierson and as a credit analyst for ABN Amro. Henk holds a Master degree (Law, Amsterdam, 1980) and a Bachelor degree (economics, Hogeschool Limburg, 1972).
On 3 January 2012 we decided to take a small overweight in equities and commodities. The global economy improved, not only in the US, but also in the emerging world and in Germany. On balance the European economy stabilised.
For the first time since Q1 2011 we are seeing a combination of cyclical trends and market dynamics that create a positive tilt for risky assets like equities and commodities. Within fixed income the most attractive opportunities are found in high yield corporate bonds.
Our quantitative models signal a broad improvement in the global economy. US economic indices continued to improve. Furthermore, recent economic figures in the emerging world (China, India) show signs of improvement. In the Eurozone, the core countries are doing relatively well (with Germany as best in class!). However, countries in the Eurozone periphery have clearly fallen in a negative growth environment.
Dividend yield exceeds bond yield in Europe 
Source: Datastream, ING IM (December 2011)
We took a bit more risk in our asset allocation
Because of these improvements in the global economy and on the back of the negative investor sentiment (a contrarian indicator) we decided to take more risk in our tactical asset allocation. On 3 January we went to a slight overweight position in equities and commodities versus cash. We maintained our neutral stance in fixed income and real estate equities.
Taking somewhat more risk does not mean that we have changed our investment outlook for 2012. We maintain our view that this year will be a road full of obstacles. Still it is important to realise that uncertain times not only come with significant amounts of volatility but also with opportunities to add value. Adding value will be more difficult than it was several decennia ago. In those times an investor could still successfully exploit a buy-and-hold strategy.
Nowadays markets are subject to extreme mood swings of investors. Therefore, asset allocators and investors in general have to be more flexible and allocation has to be dynamic. Our recent overweight in equities and commodities is an example of such an opportunistic approach.
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Senior Investment Specialist Ad van Tiggelen about Asset Allocation in October.