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Investment traffic lights

Our tactical and strategic view

Equities*

  Regions 1 to 3 months until June 2016

United States

Europe

Eurozone

Eurozone

We stay neutral on Eurozone equities. The last quarterly earnings season proved strong enough to avoid negative earnings revisions, unlike in the United States. In the short term, however, a strengthening euro, fewer inbound fund flows and Greece weigh on equities. We are waiting for the right time to increase our positions.

Germany

United Kingdom

United Kingdom

British equities also remain neutral. The Conservative party’s election win as well as stabilizing commodity prices are already reflected in stock-market prices, which have trended sideways almost since year start anyways.

Japan

Emerging markets

Asia ex Japan

Latin America

Latin America

Latin America is currently the only region we are underweighting from a tactical perspective. Earnings forecasts have been cut by more than a third in the past four months. Especially in Brazil, an economic improvement seems to be far away.

Sectors

Consumer staples

Healthcare

Telecommunications

Utilities

Consumer discretionary

Consumer discretionary

We remain overweight cyclical consumer stocks, mainly based on confident consumers in the United States and Europe. We are, however, cautious on luxury brands – including auto makers – that have already or are likely to be affected by Beijing’s fight on corruption.

Energy

Financials

Industrials

Information technology

Materials

Style

Small and mid cap

Small and mid cap

While we remain neutral on small and mid caps from a global perspective, we are positive on this segment in Europe. Despite an attractive economic environment for the asset class, valuation compared to large caps is not excessive and offers further opportunities.

Fixed income**

  Rates 1 to 3 months until June 2016

U.S. Treasuries (2-year)

U.S. Treasuries

We stick to our neutral weighting on 2-year U.S. Treasuries trying to avoid risk exposure ahead of the first Fed rate hike. While we still see September as the single most likely month for this to happen, the Fed’s tone in its June meeting has been slightly tilted to the, cautious side. Volatility in both directions could lead to short-term trading opportunities in this asset class.

U.S. Treasuries (10-year)

U.S. Treasuries (30-year)

U.K. Gilts (10-year)

Eurozone periphery

Eurozone periphery

We reduce periphery sovereign bonds to neutral in order to stay away from any negative surprises while Greece still dominates the headlines and also the spread development. With any agreement proving very elusive, this threatens skepticism in the medium term.

German Bunds (2-year)

German Bunds (10-year)

Japanese government bonds (2-year)

Japanese government bonds (10-year)

Corporates

U.S. investment grade

U.S. high yield

EUR investment grade1

EUR high yield1

Asia credit

Emerging-market credit

Emerging-market credit

We increase emerging-market credit tactically to overweight. While prices can err on both sides of our target range, we generally believe in a spread tightening. This is not likely to play out evenly over the entire asset class, making a thorough selection of countries, sectors and companies mandatory. The Fed’s recent dovish tone underpins this assessment.

Securitized / specialties

Covered bonds1

U.S. municipal bonds

U.S. mortgage-backed securities

Currencies

EUR vs. USD

EUR vs. USD

We stick to our strategic view of further U.S. dollar strengthening, based on the interest-rate divergence and the low yield environment in the Eurozone in absolute terms. Tactically we do not see a lot that speaks for the euro, either, with noise surrounding the Greek development and repositioning of large investors adding to volatility.

USD vs. JPY

EUR vs. GBP

EUR vs. JPY

GBP vs. USD

Emerging markets

Emerging-market sovereigns

Alternatives*

Infrastructure

Commodities

Real estate (listed)

Real estate (non-listed)

Real estate

The low yield environment on the back of slowly improving macroeconomic data and international trade makes us stick to our overweight position in unlisted real estate. In the United States as well as in Europe and Japan we particularly see opportunities in office and commercial real estate.

Hedge funds

Private Equity2

*Source: Deutsche Asset & Wealth Management Investment GmbH, as of 6/17/15

**Source: Deutsche Asset & Wealth Management Investment GmbH, as of 6/24/15

Source: Deutsche Asset & Wealth Management Investment GmbH

The tactical view (one to three months)

Equity indices:

  • positive view

  • neutral view

  • negative view

Fixed income and exchange rates:

  • The fixed-income sector or the exchange rate is expected to perform well

  • We expect to see a sideways trend

  • We anticipate a decline in prices in the fixed-income sector or in the exchange rate

  • A circled traffic light indicates that there is a commentary on the topic.

The traffic lights’ history is shown in the small graphs.

The strategic view up to June 2016

Equity indices, exchange rates and alternative investments:

The arrows signal whether we expect to see an upward trend ( ), a sideways trend ( ) or a downward trend ( ) for the particular equity index, exchange rate or alternative asset class.

Fixed income:

For sovereign bonds, denotes rising yields, unchanged yields and falling yields. For corporates, securitized /specialties and emerging-market bonds, the arrows depict the expected move of the option-adjusted spread over U.S. Treasuries, if not stated differently. depicts an expected widening of the spread, a sideways spread trend and a spread reduction.

The arrows’ colors illustrate the return opportunities for long-only investors.

  • positive return potential for long-only investors

  • limited return opportunity as well as downside risk

  • high downside risk for long-only investors

Tactical view:

  • The focus of our tactical view for fixed income is on trends in bond prices, not yields.

Strategic view:

  • The focus of our strategic view for sovereign bonds is on yields, not trends in bond prices.

  • For corporates and securitized/specialties bonds, the arrows depict the respective option-adjusted spread.

  • Both spread and yield trends influence the bond value. Investors who aim to profit only from spread trends must hedge against changing interest rates.

ref-1

1 Spread over German Bunds

ref-2

2 These traffic-light indicators are only meaningful for existing private-equity portfolios

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