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Investment traffic lights

Our tactical and strategic view

Equities*

  Regions 1 to 3 months until December 2016

United States

United States

We stay neutral on U.S. equities from a tactical viewpoint. We believe that earnings growth will bottom out towards end-2015, since the strong headwinds caused by sliding oil prices and a strong U.S. dollar this year should fade in 2016. However, current valuations and mixed quarterly data have failed so far to give new impetus.

Europe

Eurozone

Germany

United Kingdom

Japan

Emerging markets

Asia ex Japan

Asia ex Japan

We also stay neutral on Asia-ex-Japan equities. Intra-regional differences are enormous, however. Taiwan, India and the Philippines appear in better shape than China and Korea. Malaysia and Thailand currently do not appeal.

Latin America

Sectors

Consumer staples

Healthcare

Telecommunications

Utilities

Consumer discretionary

Consumer discretionary

Consumer discretionary remains one of our favorite sectors. Medium-term drivers such as cheap oil, falling unemployment and rising wages in the advanced economies remain intact. The effects of the emissions scandal on the automotive sector are beginning to fade although the high share of its sales going to emerging markets remains a burden.

Energy

Financials

Industrials

Information technology

Information technology

Information technology remains another of our favorites. IT companies regularly demonstrate their pricing power, particularly in the software segment (e.g. cloud computing, big data, mobile internet). Weaker segments such as hardware are partly supported by M&A activities.

Materials

Style

Small and mid cap

Fixed income**

  Rates 1 to 3 months until December 2016

U.S. Treasuries (2-year)

U.S. Treasuries (10-year)

U.S. Treasuries

In the short term, the backdrop for U.S. Treasuries looks favorable, as markets have already anticipated the Fed’s first rate hike. After the expected initial hike in December, the Fed looks set to wait and see, as it gauges the impact of this on markets as well as inflation. The federal funds rate is likely to remain low for quite a while therefore.

U.S. Treasuries (30-year)

U.K. Gilts (10-year)

Eurozone periphery

German Bunds (2-year)

German Bunds (10-year)

Japanese government bonds (2-year)

Japanese government bonds (10-year)

Japanese government bonds

Demographic factors continue to dampen trend growth. In the third quarter, Japan apparently slipped back into a mild recession. That is unlikely to prove sufficient on its own, however, to prompt immediate further monetary stimulus. We stick to our neutral weighting for 10-year government bonds.

Corporates

U.S. investment grade

U.S. high yield

EUR investment grade1

EUR high yield1

Asia credit

Emerging-market credit

Securitized /specialties

Covered bonds1

U.S. municipal bonds

U.S. mortgage-backed securities

Currencies

EUR vs. USD

EUR vs. USD

We reduce our tactical EUR vs. USD positioning to neutral. Markets have already priced in the more hawkish Fed and the more dovish ECB talk from mid-November to a great extent. Furthermore the euro is again being sought as a funding currency in a more risk-friendly trading environment.

USD vs. JPY

EUR vs. GBP

EUR vs. JPY

GBP vs. USD

Emerging markets

Emerging-market sovereign

Alternatives*

Infrastructure

Commodities

Real estate (listed)

Real estate (non-listed)

Hedge funds

Private equity2

Private equity

We stick to our strong overweight for European buyout and growth funds. The last ten years have shown that if such funds are carefully picked, good returns can be generated with low volatility. This continues to be one of the positives of this asset class as a whole.

* Source: Deutsche Asset & Wealth Management Investment GmbH; as of 11/11/2015

** Source: Deutsche Asset & Wealth Management Investment GmbH; as of 11/24/2015

1 Spread over German Bunds
2 These traffic-light indicators are only meaningful for existing private-equity portfolios

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 December 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.

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