institutional investment outlook - seb · towards a range trading ... and historic returns are no...

* the liquidity phase is still leading the markets

* heterogenous momentum across global equities

* momentum in europe is turning

* We favour global equities based on risk reWard

* bonds have potentially bottomed out after a xx year run

SEB’s House ViewInstitutional Investment Outlook March 2016

MARKETSEquity markets remains vola-tile, but have regained some of the 2016 losses.

MACRO Recession risk has recided, but growth has not picked up.

ALLOCATIONEquities are still the favourite asset class on a strategic horizon but stay cautious in the near term.

INVESTMENT THEMESStay exposed towards a stron-ger dollar and keep exposure towards a range trading strategy.

2 SEB’s HOUSE VIEW

This report has been compiled by SEB Group to provide background information only and is directed towards institutional investors. The material is not intended for distribution in the United States of America or to persons resident in the United States of America, so called US persons, and any such distribution may be unlawful.Although the content is based on sources judged to be reliable, SEB will not be liable for any omissions or inaccuracies, or for any loss whatsoever which arises from reliance on it. If investment research is referred to, you should if possible read the full report and the disclosures contained within it, or read the disclosures relating to specific compa-nies.Information relating to taxes may become outdated and may not fit your individual circumstances. Investment products produce a return linked to risk. Their value may fall as well as rise, and historic returns are no guarantee for future returns; in some cases, losses can ex-ceed the initial amount invested. You alone are responsible for your investment decisions and you should always obtain detailed information before taking them. If necessary, you should seek advice tailored to your individual circumstances from your SEB advisor.This material is not directed towards persons whose participation would require additional prospectuses, registrations or other measures than what follows under Swedish law. It is the duty of each and every one to observe such restrictions. The material may not be distributed in or to a country where the above mentioned measures are required or would contradict the regulations in that country. Therefore, the material is not directed towards natural or legal persons domiciled in the United States of America or any other country where publication or provision of the material is unlawful or in conflict with local applicable laws.

Disclaimer

3SEB’s HOUSE VIEW

Content

Summary ...........................................5Multi-Asset Forecasts ..................... 6Portfolio Strategies ...................... 7-8Equity Strategies ........................9-10FX Strategies ................................... 11Fixed Income Strategies ................12Risk Allocation ................................13Appendix ................................... 14-16

Hans PetersonHead of Asset AllocationSEB Investment Management ABContact: [email protected]

Peter Lorin RasmussenDeputy Head of Asset AllocationSEB Investment Management ABContact: [email protected]

Kristin GejrotPortfolio Manager, Asset AllocationSEB Investment Management ABContact: [email protected]

Per-Magnus EdhHead of Global Financial SolutionsSEB AB, Merchant BankingContact: [email protected]

Mikael AnvedenGlobal Financial SolutionsSEB AB, Merchant BankingContact: [email protected]

Martin LundvallDeputy Head of Core Fixed IncomeSEB Investment Management ABContact: [email protected]

Editorial

5SEB’s HOUSE VIEW

Risk Taking• We maintain a small underweight to risk.• The latest rally in equities does not reflect better

fundamentals. Neither PMIs nor EPS estimates have risen significantly.

• It is too early to reduce the probability of a contin-ued slowdown in global growth, as the weakness in the manufacturing sector has started to spread into the service sector.

• Our main risk scenario remains a significant slow-down in US growth.

Asset Allocation• We have decreased our allocation towards equi-

ties while at the same time we have increased our allocation towards global High Yield and US Investment Grade Bonds.

• Despite the fact that a range of strategic chal-lenges still exists for High Yield we believe that the asset class offers an attractive risk-adjusted return compared to both equities and govern-ment bonds over the coming 6 months.

• We remain cautious towards both commodities and Emerging Market debt.

• The market is underestimating the FED and will start to reprice the rate hike cycle over the coming months. This will lead to USD strength.

• We believe that USD strength will push down prices for commodities and EM assets.

• For EM we note that tactical growth momentum has deteriorated in February, which the market has ignored due to momentum and USD weak-ness. Thus we reintroduce a short position on EM equities.

Market Environment• Equities have on a global scale staged an impres-

sive rally since mid-February. The rally has in combination with deteriorating earnings expecta-tions lead to a significant rise in multiples, which are now standing above those in early 2015.

• Risk assets continues to be dominated by the development of oil prices. Nowhere has this been more clear than in the US High Yield markets which after a volatile start of 2016 now stands with a positive YTD return.

• The March rally has been ascribed to central banks, but the FX markets have reacted in a confusing mater as we have seen both EUR and JPY strength.

Recommended risk utilization Strategic 12 month estimates (EUR currency)

Global Equities

EM Equities

Government Bonds

High Yield

Investment Grade

EMD LC

Hedge Funds

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

0% 5% 10% 15% 20%

Retu

rn

Risk

Global Asset Allocation

* see appendix for details

45%

Source: SEBDate: 2016 March


Multi Asset Forecasts

Recommended duration allocationModel Portfolio - Multi Asset

-20% 0% 20% 40% 60%

Cash

Commodities

Emerging Market Debt

High Yield Bonds

Investment Grade

Equities

Government Bonds

Hedge Funds

Allocation

StrategicallocationDiff

Long only portfolio. Yearly VaR(95%) ex. mean between 4% and 13%. No restric-tions 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.

Investment Themes• Long USD

A repricing of the FED rate hike cycle will lead to USD strength. Positioning has become more favor-able but still a consensus bet.

• Long global creditsA reduced likelihood for a global recession com-bined with the latest stimulus from the ECB will support credits.

• Range tradingGlobal equities will trade in a range over 2016; sell upside and downside.

• ESG investingESG compliant sectors are likely to benefit from increasing flows and sustainable growth. Buy ESG baskets and funds.

ASSET CLASS VIEW E(TR) E(Б)

DM EQUITIES POSITIVE 6.0% 12.3%US EQUITIES NEUTRAL 4.2% 12.4%

EUROPE EQUITIES NEUTRAL 8.0% 16.1%

JAPANESE EQUIITES NEUTRAL 6.3% 22.1%

EM EQUIITES NEGATIVE 5.8% 16.7%

EM ASIA NEUTRAL 8.9% 20.2%

LATAM EQUITIES NEGATIVE -0.6% 24.8%

CORE FIXED INCOME NEGATIVE -1.4% 4.5%HIGH YIELD POSITIVE 6% 4.1%

INVESTMENT GRADE POSITIVE 2.9% 2.9%

EMD NEGATIVE 2% 11.0%

COMMODITIES NEGATIVE - 12.8%

HEDGE FUNDS POSITIVE 3.5% 3.5%

12 month estimates in EUR currency

Source: SEB

7SEB’s HOUSE VIEW

Slightly underweight riskWe have recommended a risk utilization of 45% since the beginning of January 2016. Despite the recent rally in equities we maintain this level. The primary argu-ments for doing so are both the economic uncertainty that currently prevails and a reduced conviction in the omnipotence of central banks. Focusing on the latter it seems to us that the market has forgotten that the FED is already in the midst of a rate hike cycle, and that the hurdle for additional stimulus therefore is elevated. A halt to the rate hike cycle cannot and should not be perceived as stimulus. With regards to the ECB, BOE, and BOJ we remain of the view that they are running close to the limits of their capabilities – in anything else than a recessionary scenario – and that any additional measures will not materially change anything. So for the first time since the financial crisis the markets are to a large extent left on its own. What makes this troubling is that growth remains fragile. We do acknowledge that the labour market in the US is strong, and yes hard data is in general better than what the PMIs are signaling. But one has to have respect for the fact that the manu-facturing weakness which we have seen since the early 2015 is now starting to become visible for the service sector as well. So although it might be sentiment driven on the margin, and thereby be able to revert in case

the equity markets continues to go up, it does lift the uncertainty of future growth.

The link between growth and market perfor-manceNow the overriding question is whether we should be concerned that growth is low. Many in the markets argue that as long as we are not about to enter an out-right recession then relative valuations will drive money back into the equity markets. And yes you can argue for that, but the trouble with this FED model style of argumentation is that it so rarely holds up empirically, and that it should not be used as a timing tool. But let us go back to 2012 when the world and finan-cial markets were in disarray due to the Euro crisis and discussions about the US debt ceiling. Back then we had the central banks to save us. So despite that growth was meagre, to say the least, we saw a signifi-cant multiple expansion that dominated the negative earnings growth in Europe at the time. Same story ap-plied, albeit to a lesser extent, for the US where we also saw a significant multiple expansion. We did however also see a significant expansion of margins which helped support growth in earnings. So now where do we stand? We have absolute valuations and margins

Portfolio Strategies

PMIsGDP Growth vs Forward EPS


which are both high in a historical context, so even if growth does pick up we are not convinced that it will actually be enough to lift equities and to create earnings growth. For example if growth does pick up we expect to see a repricing of the FED rate hike cycle in the markets. This will in our view lead to USD strength which will push down the value of foreign orders. At the same time we expect to see continued upward wage pressure in the US which will push down the already very high margins. It is in our view therefore not obvious that higher growth will actually be able to lift US equities, and there is in fact a likelihood that a stronger US economy and a stronger US labour market will actually push down earnings. In con-clusion the link between growth and earnings have in the past been weak empirically, and given that this cycle is so unlike any of the ones which we have seen in the past we actually believe the link will be even weaker than what it has been in the past.

Recommended positioning of portfoliosSo with this state in mind, we remain cautious towards risk and decrease our equity allocation. We also remain cautious towards commodities and Emerging Market Debt. Since we are not decreasing the actual level of risk, we reallocate some of the equity risk (2%-points) towards global credits. We keep our overweight towards

hedge funds, as it has proven to be a good diversifier, and a good alternative when the opportunities for yield is as limited as today. Our preferred strategies within hedge funds remain Equity Market Neutral, Event Driven, and CTA strategies.

One of our main portfolio themes is the US Dollar, which we again expect to gain strenght over the com-ing months. As the dollar today is key for several asset classes, we prefer positions that are positive correlated to the dollar - such as the USD itself and the beta overlay of US equities vs EM equities - and are more cautious towards those negatively correlated - such as EMD and commodities. We stress that this theme is a tactical posi-tion, which can be changed quickly should we see large market movements and prices reaching our targets.

Portfolio Strategies

Earnings revisions for Stoxx 600

Source: Bloomberg

2009

2010

20112012

20132014 2015 2016 2017

2018

Jan07 Jan08 Jan09 Jan10 Jan11 Jan12 Jan13 Jan14 Jan15 Jan1615

20

25

30

35

40

Estim

ated

EPS

for S

TOXX

600

9SEB’s HOUSE VIEW

Equity Strategies - Regional allocation

On the strategic 12 month horizon equities is still our preferred asset class

• The relative yield attractiveness is just too large to neglect and unless we enter a recession the cur-rent environment should benefit equities over the following 12 month period.

• Although we expect the return potential to be limited in terms of multiple expansion and needs to be driven by earnings growth.

We reintroduce a short position in EM equities• Following the rally which we have seen over the

last couple of months. • The valuation premium of EM equities relative to

DM equities has fallen to the lowest levels since 2013 despite the still diverging macroeconomic momentum for the two universes.

• EM equities and FX will be challenged over the coming months if the markets will reprice the FED rate hike cycle.

• USD 2016 EPS estimates for EM are still too el-evated and will have to be revised downward.

• Macro momentum in terms of the PMIs and global trade continues to fall.

We neutralise our European view against the US

• While we do acknowledge the positive effect of ECB’s TLTROs we are concerned about macro-economic momentum in Europe and geopolitical risks

• Brexit, Greece debt payments over the summer, political instability in Spain and Portugal

We remain positive towards Swedish equities• Due to the relatively high growth • Due to the stimulating stance by the Swedish

Riksbank • Due to relatively high EPS, and expectations of

EPS growth

12 month estimates - Equity regionsEquity Model Portfolio - Relative positioning

-5% 0% 5%

North America

Europe

Japan

Sweden

East Asia ex. Japan

EM Asia

EM Ex. Asia

Source: SEB

China Europe Sweden

DM Japan EM

US

LatAm -1%

1%

3%

5%

7%

9%

11%

10% 15% 20% 25% 30%

Retu

rn

Risk

Source: SEB


Equity Strategies - Pockets of value?

Valuations - On aggregate not attractive• On the aggregate, we do not believe valuations are

attractive, compared to only one month ago. With US equities (SP500) again trading at a around 17 in P/E (NTM), we argue that this is actually rather ex-pensive compared to history. Considering that EPS estimates have fallen we argue that US equities are expensive for the right reasons and that we need EPS growth to gain further returns.

• For Europe, we are seeing a similar pattern. EPS estimates have fallen even more than for the US over the last months, leaving P/E for Stoxx50 at 13.5 and 15.2 for the broader MSCI Europe index.

• If we turn to the Emerging Markets, we have several regions trading at attractive levels - both in absolute and historical terms. China is one example, with MSCI China trading around 10 compared to a historical mean of 12. Following the increased growth concerns for the region, we have seen EPS being revised down by nearly 12% over the last 6 months. We want to see some stabiliza-tion in the EPS estimates, or the inputs that affects the estimates, before we take an active position on the region.

Pockets of values within sectors• So on the broader index levels we are not seeing

any particularly attractive levels at the moment. Going into the segments however, we are a bit more cheerful.

• Looking within the US, the few segments that have not experienced a free fall in EPS revisions are Telecom services, Consumer staples, Info tech, Healthcare and Consumer Discretionary. Out of these, the defensive Staples sector is trading very expensive (which is also justifiable considering the quality in the sector) whereas Info tech, Healtch-care and Cons discretionary are looking more attractive relative historical levels.

• The Financial sector is by far the lowest priced sector, also followed by large downward revisions. This is in our view not yet a buying signal, as there are still too many uncertainties within the segment. It is however a position we keep on the alert as the segment starts to stabilize.

• Following this, we see pockets of value across the sectors and would prefer the defensive, lower priced sectors, such as Info Tech and Healthcare.

Sector valuations

17

16

15

14

0

21

13

18

19

20

50

World Cons Disc

World Finance

World TelecomWorld Info Tech

World Materials

World Utility

World Healthcare

World Const Staples

World Energy

Fwd PE(ntm)

10YA5YA2YACurrent 1YA Source: Bloomberg

11SEB’s HOUSE VIEW

EM InflationEURUSD

Source: Macrobond Source: Macrobond

FX Strategies

SEK to appreciate• We expect the krona to appreciate from current

levels• Being driven by the economy, flows, investor posi-

tioning and valuation• We see near term pressure due to volatile oil prices• Keeping inflation low and making the Riksbank

react with interventions• Further out, however, we expect the Riksbank to

adapt a more flexible approach related to the infla-tion target, which could allow for a stronger SEK

• We expect the EUR/SEK to trade down towards 9.00 by the end of 2016

EUR/USD to continue lower• We expect EUR/USD to continue lower from

current level as Fed continues to slowly tighten policies

• The EUR has turned into a funding currency, and thus we expect the EUR to continue being nega-tively correlated with general risk appetite, and thus will weaken over periods when risk appetite returns to the financial markets

• By end of Q2 we expect EUR/USD to trade towards 1.05 or slightly below by the end of 2016

EM FX to weaken over 2016• We expect EM currencies to weaken in 2016• Driven by Chinese growth concern, falling com-

modity prices, and a (very gradual) tightening of US monetary policy

Conclusion• We recommend leaving SEK exposure unhedged• We recommend hedging EM FX exposure• As a SEK investor - we recommend to hedge the

currency basket of the MSCI World• As a SEK investor - we recommend to hedge the

currency basket of the MSCI Emerging Markets

12 month estimates

for different investors

SEK Inves-

tor

USD

Investor

EUR Inves-

tor

MSCI WORLD TR ex FX 6.0% 6.0% 6.0%

MSCI FX IMPACT 0.6% -3.0% 6.0%

MSCI WORLD incl FX 6.6% 3.0% 12.0%

MSCI EM TR ex FX 5.8% 5.8% 5.8%

MSCI FX IMPACT 2.2% 0% 7.6%

MSCI EM TR incl. FX 8.0% 5.8% 13.4%


We maintain our short duration positionWe expect yields to move higher and as such maintain our short duration position

• Fed will continue the process of normalizing US interest rates and we believe that the market will have to reprice the FED rate hike cycle.

• ECB and Riksbank will keep conditions as easy as needed to promote inflation moving towards their targets.

• We do not expect to see further rate cuts by the ECB.

Credits in generalTactically we overweight credits as we believe the risk/reward has improved

• This is a change from previous months• A change which largely follows from the very nega-

tive sentiment which prevailed in mid-February and the decision of the ECB to start buying corpo-rate bonds.

• Strategically we are still concerned about the outlook for credits.

• In case growth remains stable we expect to see further rate hikes by the FED which in our view will be credit negative.

• If we are wrong about the rate hike cycle this will

most likely be due to a significant deterioration in macroeconomic momentum, which again will be credit negative.

High Yield and Investment GradeWe expect that global High Yield bonds will outperform Investment Grade and Government bonds over the coming 12 months

• Structural factors which historically have been supportive for the asset class are still in place.

• The strategic macroeconomic environment is improving.

• The global hunt for yield is still alive.• As such we still expect investors to move from

higher rated bonds and into High Yield, on a sector like for like basis.

Fixed Income Strategies

Source: Bloomberg

Credit spreads have narrowed since the February peaks


Source: Bloomberg

Condensed Beta - Risk allocation

Investment Themes• Sector dispersion

Value has to be found in relative sectorial posi-tions: create equal weighted basket to minimize idiosyncratic risk.

• Long USDStrong growth and tighter monetary policies will continue to be favourable for the dollar.

• Range tradingGlobal equities will trade in a range over 2016; sell upside and downside.

• Dividends FuturesCapture roll yield in European Dividend future; an alternative carry premium which we need for a low yield environment.

• ESG investingESG compliant sectors are likely to benefit from increasing flows and sustainable growth. Buy ESG baskets and funds.

Explanation of table: The positions are expressed in terms of Risk Utilization percent-age points, or, in terms of Condensed Betas (COBE). COBE can be implemented either as an overlay to an existing portfolio or it can be implemented as a standalone portfolio. All views are expressed in terms of a risk utilization budget. We might for example state that we want 5%-point of our risk budget to be allocated to European vs. US equities.

POSITION RISK UTIL.%EQUITIES

MSCI EM VS MSCI DM -5

EM ASIA VS MSCI EM EX. ASIA 0EUROPE VS US 0

JAPAN VS US 0

SWEDEN VS MSCI WORLD (EX. SWEDEN) +5EU SMALL CAP VS EU LARGE CAP 0

MSCI WORLD +30

US MOMENTUM 0EU DIVIDENDS 0

EU VALUE 0

EU GROWTH 0CORE FIXED INCOME

GERMAN 10Y YIELD -2US 10Y YIELD -2

SWEDEN 5Y YIELD -2

CREDITSUS HY SPREAD +10

US IG SPREAD +1

EMD SPREAD -1CURRENCIES

EM FX -2

USDSEK +3EURUSD +2

USDJPY -2

USDGBP 0COMMODITIES

BLOOMBERG COMMODITY BASKET -5

45%


APPENDIX

Full COBE List

CONDENSED BETA - RISK ALLOCATION VIEWS

Investment Themes View VAR % Position rule, current regime

MSCI EM vs MSCI DM Neg -5% PMI delta and valuation spreadEM Asia vs MSCI EM ex. Asia - - PMI delta and commoditiesUS vs Europe - - PMI / Valuation and monetary policiesJapan vs US Neg -5% Monetary policies and currenciesSweden vs MSCI World (ex. Sweden) Pos 5% Macro momentumEU Small Cap vs EU Large Cap Neg - Valuation spreadMSCI World Pos 30% Macro momentumUS Momentum Neg - Macro reversial and valuationEU Dividends Pos - Curve rollEU Value Neg - Factor spread and macro shiftEU Growth Pos - Factor spread and macro shift

German 10Y Yield Neg -2% Macro trend / CB policiesUS 10Y Yield Neg -2% Macro trend / CB policiesSweden 5y yield Neg -2% Macro trend / CB policies

US HY spread Pos 10% Macro profile and spreadEU IG spread Pos 1% Macro profile and spreadEMD spread Neg -1% Macro profile and spread

EM FX Neg -2% Cross < / >TargetUSDSEK Pos 3% Cross < / >TargetEURUSD Pos 2% Cross < / >TargetUSDJPY Neg -2% Cross < / >TargetUSDGBP Pos - Cross < / >Target

Bloomberg commodity basket Neg -5% Price < Macro trend + supply/demandOil Neg -5% Price < Macro trend + supply/demandGold Neg - Price < Target + Macro momentum

Equities

Fixed Income

Credits

currencies

Commodities


APPENDIX

Top down valuation model for estimating returns

Explanation: We apply a top down approach when estimating our annualized returns for equity regions. The method considers three major sources of returns: expected change in P/E, expected EPS growth, and Dividends (in nominal figures). We assume that earnings should be able to grow with the region’s nominal growth added by the average leverage for the firms. We assume that top-line growth should be adjusted for the region’s exports, so that heavy export countries also will benefit from global growth. We furthermore assume a change of margins over the coming 12 months, which will affect the earnings growth. In terms of change in P/E, we add a variable for the Yield component, assuming that higher yields will lead to a P/E contraction, and lower yields a P/E expansion. Dividends are simply taken from 12 months guiding dividends (source Bloomberg). The Bottom up Valuation approach simply takes the consensus estimates for earnings growth, of which we add the dividends to reach the total 12 month return. This is something we use as a benchmark, to get a sense of market estimates, and nothing we make decisions from.

RegionCurrent

index level Current EPSEPS

Growth* Fwd EPS PE (trailing) ∆PE**PE

EstimatePoint

estimatePrice

return Dividend Total returnDM 1,628 83.5 3.3% 86.2 19.49 0.0% 19.49 1,681 3.3% 2.7% 6.0%US 2,037 110.3 2.9% 113.5 18.46 -1.0% 18.28 2,075 1.9% 2.3% 4.2%Europe 113 4.9 4.2% 5.1 23.20 0.0% 23.20 118 4.2% 3.9% 8.1%Japan 17,104 906.3 3.3% 936.2 18.87 1.0% 19.06 17,844 4.3% 1.9% 6.2%Sweden 1,354 81.2 4.2% 84.6 16.7 0.0% 16.67 1,411 4.2% 4.4% 8.6%EM 813 60.3 3.9% 62.7 13.5 -1.0% 13.35 837 2.9% 2.9% 5.8%China 55 5.6 5.8% 5.9 9.9 0.0% 9.89 58 5.8% 2.9% 8.8%LatAm 2,125 68.6 -2.7% 66.7 31.0 -1.0% 30.69 2,046 -3.7% 2.8% -0.9%Point estimate = Fwd EPS * PE estimate

Fwd EPS = Current EPS * (1+EPS growth*)

PE estimate = Current PE * (1+∆PE**) Top line growth = Estimated GDP adjusted for domestic and global contribution

Price estimate = (12m index point estimate / Current index level) - 1∆PE** = Repricing effect from Yields

Total Return = Price estimate + Dividends

RegionCurrent

index level Current EPS Fwd EPS Trailing PEFwd PE Current

Point estimate

Price return Dividend

Total return

DM 1,628 83.5 98.5 19.5 16.5 1,920 18.0% 2.7% 20.7%US 2,037 110.3 118.2 18.5 17.2 2,182 7.1% 2.3% 9.4%Europe 113 4.9 7.4 23.2 15.2 143 26.3% 3.9% 30.2%Japan 17,104 906.3 948.8 18.9 18.0 17,904 4.7% 1.9% 6.6%Sweden 1,354 81.2 93.5 16.7 14.5 1,558 15.1% 4.4% 19.5%EM 813 60.3 66.7 13.5 12.2 899 10.6% 2.9% 13.5%China 55 5.6 5.5 9.9 10.1 54 -2.2% 2.9% 0.8%LatAm 2,125 68.6 136.6 31.0 15.6 3,179 49.6% 2.8% 52.4%

Top down valuation method

EPS growth* = Top Line growth * Leverage + Currency factor + Oil price factor + change in margin

Bottom up Valuation, Consensus estimates


The Risk UtilizationThe 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 maxi-mum 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 di-rectly 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 un-derweight to equities. Finally note that in practice most portfolios will only reach the maximum risk by a full utili-zation 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 expec-tations 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.

PortfoliosThe model portfolio referred to in the text is a gener-ic 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 op-timization over the 12 month risk and return estimates. The risk utilization of the portfolio corresponds to the risk utilization level of the House View.

APPENDIX

Model Portfolio and Risk Utilization

institutional investment outlook - seb · towards a range trading ... and historic returns are no...

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