SEB`s House View

MARKETS
Liquidity driving the markets
MACRO
Still waiting for the rebound
EQUITIES
Still the favored asset class
* the liquidity phase is still leading the markets
* heterogenous momentum across global equities
* momentum
in europe is
turning
Institutional
Investment
Outlook
* We favour global equities based on risk reward
* bonds have potentially bottomed out after a xx year run
SEB’s House View
#2
June 2015
Disclaimer
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2
SEB’s HOUSE VIEW
Content
Editorial
Summary............................................5
Portfolio strategies.......................... 6
Macro and markets...........................7
Equities.............................................. 8
FX....................................................... 9
Yields................................................10
Credits.............................................. 11
Commodities...................................12
Hedge funds....................................13
In focus ...................................... 14-15
Appendix..........................................16
Hans Peterson
Head of Asset Allocation
SEB Investment Management AB
Per-Magnus Edh
Head of Global Financial Solutions
SEB AB, Merchant Banking
Peter Lorin Rasmussen
Asset Allocation, Portfolio Manager
SEB Investment Management AB
Mikael Anveden
Global Financial Solutions
SEB AB, Merchant Banking
Kristin Gejrot
Asset Allocation, Portfolio Manager
SEB Investment Management AB
Tomas Niemelä
Core Fixed Income
SEB Investment Management AB
SEB’s HOUSE VIEW
3
4
SEB’s HOUSE VIEW
Summary
On expectations of a rebound in global growth for Q2
and Q3 of 2015, and in recognition of the still highly
accommodative global monetary policy, the House
View remains positive towards risk in general and equities in particular. As such the House View, as in the
last publication, recommends a risk utilization of 70%.
The positive stance towards risk applies for both the
tactical and the strategic horizon. Focusing on the latter it remains our view that developed market growth
for 2015 and 2016 will both be stronger and more
stable than what it has been since the financial crisis.
This as the Eurozone finally seems to be on the verge
of leaving the state of perpetual crisis and low growth
that has characterized it ever since 2011, and that the
US recovery finally seems to be in a position where
growth will not falter away at the first signs of a tightening in monetary policy. The positive view on developed market growth, combined with the increasingly
aggressive monetary stimulus by China, is the main
reason as to why the House View remains confident
that equities over the coming 12 months will deliver a
return higher than that of all other asset classes.
As DM growth is our main argument for the positive
stance towards risk it is also our main risk scenario.
If the weakness of Q1 2015, against our expectation,
does not prove to be temporary then naturally we will
enter a more challenging scenario for equities. As of
writing a long series of explanations have been put
forth to explain the weak US growth of Q1 2015. Yet,
none of them seems to be of a size that could reasonably explain the sudden and severe drop that we saw
in Q1. The greatest risk is therefore that some underlying, unexplained development is in play which will
hamper growth going forward. Furthermore we note
that a growth scare scenario could and would be amplified if energy prices for some reason starts to move
higher. Albeit not the base case of SEB, it would make
everything more challenging as yields would then be
pushed higher while at same time equities would fall
due to growth.
Since the last publication of Institutional Investment
Outlook the risk utilization has both been lowered to
60% and then raised once more to 70%. The prime
motivation for these tactical adjustments in risk
utilization was expectations around the start of the
FED rate hike cycle. In mid-March we expected that
the start of the FED rate hike cycle lifted the probability of the markets entering a tapering style phase
as we saw in 2013: A market in which yields rose while
equities declined. The increased probability of such
a market led us to a reduction in risk utilization from
70% to 60%. Since the reduction in risk utilization we
saw a series of macro prints which led to a significant
outward shift in the FED funds curve. Combined with
dovish FED comments the FED funds curve shifted
outwards again and as such we increased risk utilization back to 70%.
Recommended risk utilization
Strategic 12 month estimates
* see appendix for details
15%
Swedish Equities
13%
11%
70%
Emerging Market
Equities
9%
Global Equities
rnu
et 7%
R
EMD LC
5%
High Yield
Hedge Funds
3%
Investment Grade
Government
bonds
1%
Commodities
-1%
0%
5%
10%
15%
20%
Risk
SEB’s HOUSE VIEW
5
PORTFOLIO STRATEGIES
Multi Asset Allocation
In a multi asset context we continue to favour equities
against all other asset classes, and strives towards what
can best be described as a barbell like strategy. That is:
We recommend having more equities (high risk asset)
and government bonds (low risk asset) than what we
would normally have in a traditional risk-on environment; where we would also have a large allocation
towards credits (middle risk asset).
We motivate the high allocation towards equities on
the expectation of a rebound in growth over Q2 and
Q3 2015 and in acceptance of the still highly accommodative global monetary policy. In addition to these
fundamental factors we also favour equities since the
asset class remains the only place where any significant
positive nominal return can still be expected. Even with
the latest bond rout in mind we are still in an extreme
low yield environment: An environment which for better
or for worse has made the earnings yield of equities
relatively more attractive. We expect that this fact will
continue to support the global hunt for yield, pushing
investors out on the risk curve, and as such create a
continued support for equities. Looking at the markets
over the last couple of years, this argument seems to
have been validated as each, large or small, correction
has been reverted with close to unprecedented speed.
Model Portfolio - Multi Asset
Despite the latest rally in oil prices we remain cautious
to commodities. We do so because we continue to
view the volatility as relatively high, which implies that
any allocation will consume a rather large portion of
our risk budget. In other words, any allocation towards
commodities would in effect force us to reduce our allocation towards equities.
As stated we continue to strive towards a barbell style
strategy in our portfolios. We do so because we expect
government bonds to be the only asset class to diversify our equity allocation in a growth scare scenario.
Favor equities over all other major asset classes. Keep an
exposure to government bonds as a hedge towards a growth
scare scenario.
Model Portfolio - Pure Equity Model
EM Other
Hedge Funds
Russia
Allocation
Government Bonds
LatAm
MSCI AC
Equities
EM Asia
High Yield Bonds
Emerging Market Debt
Commodities
Allocation
Strategic allocation
10% 20% 30% 40% 50% 60%
Long only portfolio. Yearly VaR(95%) ex. mean between 4% and 13%. No restrictions on the individual asset classes. The weights are set manually by the House
View committee; i.e. they are not based upon an optimization odel.
SEB’s HOUSE VIEW
Sweden
Japan
Europe
North America
Diff
Cash
-20% -10% 0%
Diff
East Asia ex. Japan
Investment Grade Bonds
6
We view this as a sign of the large, latent demand for
yield which leads market participants constantly itching
to buy the dip whatever the size.
-10%
0%
10%
20%
30%
40%
50%
60%
MACRO AND MARKETS
Growth rebound so far elusive
On a headline level 2015 has to a large extent mirrored
the development of early 2014 with growth surprising
to the downside due to harsh weather conditions. But
in contrast to 2014 we have as of writing yet to see a
significant reversal in macro-economic data; a reversal
which for 2014 already started to materialize in early
March. We are therefore left with a global economy
which on a tactical horizon seems to have lost steam
compared to H2 2014.
The elusive rebound in growth for 2015 have, since the
last publication, led to a significant downward revision
of estimated 2015 GDP growth for the US. Whereas the
consensus for 2015 growth as a whole sat at 3.25%
in mid-January, it has over the last couple of months
been reduced to only 2.5%. And even this estimate still
seems to be conflicting with quantitative, hard data
based measures such as the Atlanta FED GDPNow
estimator which stands lower for Q2.
Despite the still elusive rebound in growth equity markets have fared well in 2015. US equities posted new
all-time highs in May and we have seen a significant
rally in Chinese equities. The latter driven by increasingly aggressive monetary stimulus by the PBOC and
speculation about further liberalisations within the
US GDP growth is being revised lower
financial system. Although global growth has been
challenged we have seen small upward revisions in
2015 and 2016 EPS estimates. A move which have kept
valuations in place compared to the levels that were
obtained at the start of 2015. The primary driver of the
changes in US and European EPS estimates has been
the Energy sector, which naturally has been revised
higher with the upward move in oil prices.
In the fixed income markets we have seen a significant shift higher in yields. A shift which came to place
without any material macro related driver. None the
less measured on a 3 week horizon the absolute change
in German yields mirrored that which was seen in 1994
when the FED launched a series of rate hikes.
The consensus rebound in Q2 and Q3 growth for 2015 remains
elusive. Equities and bonds have to a large extent not reflected
this as both equity prices and yields have gone higher.
The turnaround in macro surprises have yet to materialize
Source: Macrobond
Source: Macrobond
SEB’s HOUSE VIEW
7
ASSET CLASS VIEWS
Equities
Equities have been our favourite asset class for some
time now and we do not see any reason to change this
view as of yet. Ample liquidity and a reprising of the
global growth outlook should support the asset class
on both a tactical and strategic horizon, even though
we expect increased volatility closer to Fed’s liftoff.
We note that valuations are stretched in most metrics
however relative valuations compared to fixed income
still seem to favor equities, supporting our bias.
As of writing we expect DM equities to rise on good
macro news out of the US and that Fed rate hikes will
not be discounted until we have seen a longer series of
good macro prints. This leaves a window of opportunity
in which good news will be priced as good news, in
contrast to the market of early 2015. The large uncertainty about how high valuations should be interpreted
furthermore leaves an attractive premium on equities,
as investors remain hesitant to enter the asset class in
size due to high univariate valuations.
Within the DM space we have a positive tilt towards
Europe compared to the US. We expect the pickup in
European growth to continue and we do not think this
is fully priced in yet after so many years of suppressed
success in turning the economy. The higher growth is
Earnings yields are still high compared to core bond yields
Source: Bloomberg
8
SEB’s HOUSE VIEW
already reflected in rising EPS estimates and with the
support from ECB QE we believe European equities will
continue to trend higher over the coming months. We
are furthermore positive towards Japanese equities as
BOJ remains a supportive factor, cyclical indicators are
improving, and EPS forecasts are rising.
Within EM we increasingly stress the importance of
selectivity as the constituent countries become more
diverging for each day. LatAm and Russia are now on
recessionary grounds, they are suffering from the lower
commodity prices, and they will not benefit from easing policies any time soon. EM Asia on the other hand
is and will be supported by easing monetary policies,
comes out as a winner from the lower commodity
prices, and have a positive exposure towards global
growth. Thus we favor EM Asia at the expense of LatAm
and Russia; implicitly increasing our exposure towards a
rise in global trade, increasing our beta towards further
Chinese rate cuts, and avoiding exposure towards commodity producers.
We remain positive towards equities and are slightly more
positive towards Developed Markets contra Emerging Markets.
Our favourite regions are Europe, Japan and EM Asia.
EPS Growth is rising
Source: Bloomberg
ASSET CLASS VIEWS
FX
Monetary policy continues to play an overwhelmingly
important role in currency markets, while FX markets
are perhaps more important for central banks now than
ever before. We expect exchange rates to remain volatile and important for policy makers going forward.
The correction higher in EUR/USD a few weeks ago
occurred after a very long period in which EUR/USD
trended lower, due to additional easing by the ECB and
expectations of tighter US monetary policy. The oil
price and European bond yields were other trends that
turned around, fuelling the more dollar-negative direction. The increased risk for US economic weakness and
the associated impact on FED expectations furthermore hit the dollar as the market clearly had a very long
position in the currency.
Going forward, we maintain our view that the dollar will
recover and EUR/USD eventually breaks below previous
lows. The oil price is unlikely to move much higher after
surging $USD 20/bbl since February, and we expect
the new Brent equilibrium price to be established
around $USD 60/bbl, near its current level. Moreover,
we expect German bond yields to fall back from current
levels as the ECB will continue to buy large quantities
for a considerable period. This should cause increasing
EURUSD has been driven by speculation on the FED
rate differentials between the US and Germany to support the dollar. Finally, we expect weak US economic
activity in Q1 to recede in coming quarters and demand
to recover going forward.
In terms of the SEK, the Riksbank has announced an
expansion of bond purchases by SEK40-50bn since
April 29 and is keeping the door open for further easing
as additional rate cuts, additional expansion of bond
purchases or even direct currency interventions. Although these actions have not had a significant effect
as of yet, we expect the Riksbank to cut rates to -0.40%
either at the ordinary meeting on July 2nd or before
and may also announce additional QE. As long as the
Riksbank targets a weak currency to boost inflation and
inflation expectations, and is prepared to launch more
easing, it is unlikely that the krona would appreciate
in any substantial way. Towards the end of the year we
do however expect inflation to rise closer to the target,
which means the Riksbank probably can lower its guard
and accept a slightly stronger krona against the euro.
We continue to be positive towards USD and GBP while currencies with short exposures include the EUR, CHF and JPY.
SEB FX Scorecard Portfolio
40.0%
30.0%
20.0%
10.0%
0.0%
-10.0%
-20.0%
-30.0%
-40.0%
USD
% 35.0%
Source: Macrobond
GBP
35.0%
SEK
13.7%
NOK
10.1%
CAD
6.2%
NZD
-6.1%
JPY
AUD
-14.3%
-23.6% -25.4% -30.6%
CHF
EUR
Source: SEB
SEB’s HOUSE VIEW
9
ASSET CLASS VIEWS
Yields
Even with the latest rout in bond prices in mind we
remain negative on yields on a strategic horizon. In an
environment where political risk factors are lower than
what they have been for years, where growth is finally
starting to consolidate on higher levels, and where the
US output gap seems close to being fully eradicated,
we expect to see an upward pressure on yields over
the coming quarters. A move which in the US will be
accentuated by the start of the FED rate hike cycle, and
a move which in Europe will lead to a steepening of the
curve; as short dated European yields must be expected to remain low for the foreseeable future.
Since the latest publication, we have lifted the importance of the QE program launched by the ECB. This
in so far that we expect its implied supply/demand
dynamics to continue to introduce a heightened volatility in the markets. The primary argument for this view
is that during all of the US based QE programs we had
a relatively large issuance of government bonds. This
implied that the QE ensuing effects on growth and
inflation expectations dominated the effect from having a constant buyer – the FED – which in turn helped
to push yields higher. The current Eurozone based QE
program stands to some extent in contrast to that.
Net issuance of government bonds in the Eurozone is
Net issuance during ECB QE is lower than corresponding FED QE
Source: Macrobond
10
SEB’s HOUSE VIEW
now at the lowest levels in years, which we expect will
lift the importance of the programs supply/demand
characteristics relative to the impact on growth and
inflation expectations. So while we continue to expect
yields to move higher, as they did during the times of
FED QE, we expect the ride to be bumpier. For better or
for worse this argument, of heightened volatility, has
been clearly visible during the last couple of months
where German yields have gone significantly higher
without any major change in neither forward inflation
nor expected growth.
Focusing on the US we expect that FED rate hikes once
more will come into focus over the coming quarters.
The latest move higher in energy prices should continue to push headline inflation higher, and with signs
of labour market shortages growing clearer by the day
we also expect to see a rise in core inflation. The latter
being a natural consequence of a job market that has
been strongly improving over the last year and a half.
Yields should continue to move higher in line with an improving global growth and rising headline inflation. Yet the supply/
demand dynamics of ECB QE will make the rode bumbier.
Break-even inflation have risen slightly
Source: Macrobond
ASSET CLASS VIEWS
Credits
Our view on credits is perhaps more than anything
determined by our aggregated multi asset portfolio
strategy. While we do expect High Yield to outperform
core government bonds, we are still gradually reducing our exposure towards it; this as we see more value
in equities in our base case scenario, and more value
in government bonds in case we are wrong. In other
words, we do not expect the global economy to return
to the state of latter years with low and somewhat
stable growth. A growth state which in the past has
lifted the relative attractiveness of credits compared to
both equities and bonds.
With that being said we stress that as soon as equities
are not an option in the portfolio, then we do prefer
High Yield over Investment Grade and Investment
Grade over government bonds. We are as such positive on spreads in general in the current liquidity driven
market; and only negative on the rate component of
returns.
In terms of driving factors much is looking favourable
for spreads: Credit conditions are benign and improving rapidly for the Eurozone, liquidity remains ample,
and as stated consistently in this outlook we do expect
to see a strengthening of the global economy. The
US HY expected default rates are on the rise
Source: Macrobond
only clear negative factor for US High Yield is a small
expected rise in expected default rates. A rise which
seems caused by uncertainty about how FED rate hikes
will affect the asset class as a whole.
For our multi asset portfolios we continue to have a
minimal allocation towards Investment Grade bonds.
Solely because we see spreads as too low in absolute
levels to offer any attractive return, and that we highly
dislike the rate component in our base case scenario.
We do however recognize the support that European
Investment Grade will get from ECB QE, so in a portfolio consisting only of higher rated fixed income we do
prefer Investment Grade over government bonds.
We continue to favour High Yield over Investment Grade, and
Investment Grade over Government bonds. Ample liquidity and
stable growth should support spreads.
IG and HY spreads
Source: Bloomberg
SEB’s HOUSE VIEW
11
ASSET CLASS VIEWS
Commodities
The commodity space is a mixed clientele and on
aggregate we are slightly more positive than earlier,
based on a mixed number of reasons. Oil which is an
important part of the space has recovered some of
its big losses that started earlier last year, and with
some more stability we now have a neutral view on the
longer term. Short term however we expect increased
volatility as long speculative positions are selling off in
Subspace
Outlook
•
Oil
•
•
Industrials
•
•
Softs/
Agriculture
•
•
Gold
•
Driving Factor
Neutral long term, spot price to follow forward
curve.
Expecting setback short term, tactical downside
potential before summer.
Neutral long term, potential in Nickel/Zink due to
Chinese housing.
Contango in forward curve, supportive as stocks
might build.
Neutral with a negative trend as the fundamental
downtrend remains.
El Niño is a crucial factor for the price on coffee
and sugar. The price may rally caused by the
weather effects, although very difficult to
estimate.
Neutral long term with short term upside
potential.
Recommend long position ahead of the end of the
Greek bailout program.
Long speculative positions on WTI continue to increase
Source: Macrobond
12
SEB’s HOUSE VIEW
an accelerating pace, which may intensify if the dollar
strengthens. As OPEC is producing near record levels
we can also expect further anxiety in the Middle East
and North Africa, adding to the short term volatility.
The outlook is that Brent oil will trade around USD$60
per barrel and as such we recommend waiting for a
buying opportunity on lower levels, before entering the
third quarter of higher demand.
•
•
•
USD development
Supply/demand
Speculative flows
•
China story - slowdown in Chinese growth drags
prices
•
•
El Niño
Fundamental growth
•
•
Benefits from increased EUR volatility
US economy: gold will benefit if US continues to
surprise on the soft side
Gold price vs EURUSD
Source: Macrobond
ASSET CLASS VIEWS
Hedge funds
We continue to have a constructive view on hedge
funds as a portfolio component, serving well as a diversifier over the longer term. The universe is of course
not uniform and we keep stressing the importance of
choosing the right strategy and manager for the right
investment purpose.
The broader HFRX index has over the last 12 months
generated a return of 5.3% while maintaining a low
volatility and decent correlation of 87% to the equity
markets. The characteristics of HFRX is however quite
theoretical, representing a composition of the whole
hedge fund universe, and as such perhaps not all that
representative for the typical hedge fund allocation.
Currently we have most conviction within Systematic
Macro/CTA, Equity Market Neutral, Global Macro, and
Event Driven strategies:
Macro/CTA funds have had a great success over the last
year and we continue to have a positive view towards
the strategy given the benign market for trend followers. Lower asset correlations and divergent price trends
are furthermore positive for performance.
Global Macro strategies will continue to benefit from
different regional growth trajectories which will lead to
lower regional correlation and more trading opportunities. A communicative FED reduces policy risk and sets
the scene for more stable macroeconomic trends.
Event Driven strategies will be stimulated by easy
money which will flush companies with cash while
market incentives provide fertile ground for corporate
activity. Improving market fundamentals in Europe
make European focused funds particularly interesting.
One main concern is many new fund launches which
could create long term crowding.
The Equity Market Neutral space is experiencing a
higher dispersion among funds than earlier as the
aggregate index (Credit Suisse) generated a negative
3.1% over the last 12m. The trend is more alpha opportunities through higher dispersion in stock returns
(rather than macro trends) and that managers gradually
increase their gross exposure as conviction returns.
We are positive towards hedge fund strategies that benefit
from a market with low interest rates, clear currency trends,
and benign conditions for increased company activities.
Summary Hedge Fund strategies
Strategy
Hedge Funds
(HFRX)
Equity Long/Short
Last
12m
5.30%
CTAs vs MSCI World
Outlook
Positive
5.50%
Correlation
to equities
since 2014
87%
89%
Equity Market Neutral
Neutral
(Positive)
-3.10% Positive
Credit Long/Short
2.80%
45%
-13%
Event Driven
Neutral
(Negative)
2.20% Positive
77%
Global Macro
7.60%
Positive
10%
Systematic Macro/CTA 20.50% Positive
1%
Source: Bloomberg
SEB’s HOUSE VIEW
13
IN FOCUS
Bond market correction makes sense
The timing, pace and magnitude of the recent rise in
bond yields took most investors by surprise. This was
most evident in the Euro area where fundamentals
remain supportive of low yields and ECB is actively pursuing a policy to keep yields low. The discussion about
the causes has centered around a mix of technical
factors accompanied with ECB’s bond purchases and
unwinding of positions to an easing of the deflationary
risks that ran through markets during the second half
and early this year.
Obviously the move in itself has all the signs of a reaction to an overbought market were investors got caught
long after a too fast and too large downward move. The
last leg on the downward move and the one that more
or less has been taken back by the sell-off was driven
by the announcement and start to ECB’s Public Sector
Purchase Program.
The program is large and worries of a scarcity of eligible
bonds, especially in Germany, were further ignited as an
increasing part of the bonds traded below the -0.20 %
yield floor, making them non-buyable. The fact that the
initial buying was done when supply was relatively low
also contributed. This “scarcity” thereby helped to push
down the term premium on Euro area bonds. It possibly
Source: Macrobond
SEB’s HOUSE VIEW
Even if there still remains a risk for scarcity as supply
of government bonds will be relatively low bond risk
premia may stay higher after the sell-off. One lesson is
that increased central bank involvement in the markets
may not be a recipe for less volatility and there are now
more widespread discussions of herding behavior.
A more fundamental base for higher bond yields can
be found in a change to the inflationary outcome and
to inflation expectations. Clearly the oil price collapse helped to push down an already low inflation to
extremely low levels, which also put downward pressure
on inflation expectations. In the Euro area this was especially worrisome as the economy remained weak and
even lower inflation could reinforce a more negative
deflationary development. Thereby the strong answer
from the ECB.
Euro Area: Inflation and 10Y
10-year yields
14
also had spillover effects to other bond markets, e g
Treasuries, as they became relatively more attractive.
A characteristic of the purchase program is that when
yields then moved higher the reverse effect also came
in to play – rising yields make a larger amount of
shorter-term bonds eligible to buy and thereby reduces
the risk of scarcity of longer term bonds.
Source: Macrobond
IN FOCUS
Bond market correction makes sense
Now the bounce in oil prices and a weaker euro have
helped inflation in the euro area to return to positive
levels and inflation expectations have not fallen further,
rather the opposite. Worries of a deflationary development have clearly abated, helped also by a stronger
economic development and upward revisions to future
growth.
The stabilization and rise in oil prices will, if sustained,
help to bring year-end euro area inflation to at least
what it was before oil price collapsed. That will likely
not be high enough to persuade ECB that a change to
policy will be imminent. But it may at least give reason
for a start to a more fundamental discussion of a normalisation of monetary policy.
The situation is clearly different in the US. Higher
inflation is one of the missing ingredients that markets
and the Fed would like to see to make rate hikes more
obvious. US CPI inflation seems to have reached a
bottom and the bounce in oil prices will start to feed in
to inflation as from May. The direct effect from lower
energy prices has been especially large in the US which
is very visible looking at the development excluding
energy from CPI.
Euro Area Inflation excl Energy
This means that headline CPI inflation will move substantially higher towards the end of the year if energy
prices stabilize at today’s levels and the non-energy
portion of the CPI continues to grow near the present
2% rate.
The latter is supported by the recent upside surprise
to core CPI. Rents and service prices have been on the
high side. With vacancy rates at historically low levels it
is reasonable to expect rents to continue to stay higher
and a tighter labor market speaks in favor of a continued rise in service prices. Higher headline inflation
usually helps to lift inflation expectations.
According to what seems to be the consensus view
among forecasters we should end the the year with US
growth at around 3% and an unemployment rate that
is running at or even below what the Fed acknowledges
to be the long term rate. Add 2 % inflation and higher
inflation expectations and it makes sense that many
investors expect the Fed funds rate to be higher than
today’s 0.25% and that the guidance will be for further
monetary tightening. Historically that has also tended
to put an upward pressure on longer term bond yields.
USA: CPI less energy
Source: Macrobond
Source: Macrobond
SEB’s HOUSE VIEW
15
APPENDIX
Model Portfolio and Risk Utilization
The Risk Utilization
The risk utilization, also called the speedometer, should
be interpreted as follows:
• A risk utilization of 50% corresponds to a neutral
stance towards risk
• A risk utilization of 100% corresponds to a maximum allocation towards risk
• A risk utilization of 0% corresponds to a minimum
allocation towards risk
The different levels of risk can naturally be implemented
in several ways: For example one could obtain 50% risk
utilization by underweighting equities, underweighting
government bonds, but overweighting High Yield bonds
correspondingly. As such the speedometer can’t be directly translated into a set of portfolio weights, but it will
restrict the combined portfolio weights. For example it
will specify how much you should overweight High Yield
bonds provided that you had settled on the absolute underweight to equities. Finally note that in practice most
portfolios will only reach the maximum risk by a full utilization of the investment guideline towards equities.
In relation to the above, we should mention that the SEB
House View Committee – the steering asset allocation
committee in SEB – does provide return and risk expectations so that a portfolio can be constructed directly.
The speedometer is just one among many parameters
which are communicated and which captures the asset
allocation views.
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SEB’s HOUSE VIEW
Portfolios
The model portfolio referred to in the text is a generic long only portfolio. Besides the positive portfolio
weights it is only restricted in so far that the Yearly ex
ante Value at Risk (95%) ex. mean must be between 4%
and 13%. The weights are set manually by the House
View Committee, and are as such not based upon an optimization over the 12 month risk and return estimates.
The risk utilization of the portfolio corresponds to the
risk utilization level of the House View.
SEB’s HOUSE VIEW
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SEB’s HOUSE VIEW
SEB’s HOUSE VIEW
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SEB’s HOUSE VIEW