Our asset allocation track record
2023 (H2)
What we got right:
- Our neutral positioning on sovereign bonds
- Our neutral positioning on commodities (constantly neutral on the oil price, overweight gold and underweight industrial metals. These picks proved astute)
- Our overweight corporate credit
- Our overweight cash
- Consistently preferring IG credit to HY credit
- Our long equities from the beginning of the period
- Our overweight US equities vs European equities
- Our underweight UK equities vs the MSCI World
- Our overweight US Tech
- Our decision to overweight European oil stocks until 14 October before returning to neutral. This proved relatively wise
- Remaining long yen vs dollar throughout the period
- Remaining neutral overall yen relative to the dollar over the period
- Remaining neutral sterling vs the euro
- Remaining neutral / slightly long Swiss franc vs the euro, while the Swiss franc gained about 5% relative to the euro over the period
What we misjudged:
- Our decision to return to neutral equities in mid-November was somewhat too little too late
- Our overweight SMI vs MSCI World despite the appreciation of the Swiss franc
- Our neutral position emerging markets, which underperformed despite reporting a positive performance
- Our decision to start the period on neutral European banks, then underweight from September, did not pay off
- Our overweight Quality did not prove profitable
2023 (H1)
What we got right:
- Our neutral position on sovereign bonds global equities gained just 2% in H1 in local currency and dipped 2% in EUR)
- Our decision to overweight EM debt (4% in USD in H1 and +2% in EUR) as well as our underweight UK and Japanese debt (0% and -8% in EUR respectively in H1). This is also true of our overweight bias on peripheral debt vs core eurozone debt
- Overweight US equities vs European equities
- Underweight UK equities
- Overweight Italian equities vs MSCI EMU
- In terms of style in Europe, our long Growth vs Value worked well overall. We were right to overweight the High Dividend style in view of the high remuneration of cash
- In terms of sectors in Europe, our long Banks until mid-April, then neutral later on proved right
- For commodities, the direct impact of oil output cuts on the oil price finally materialised, very too late in July and August, which we played successfully nonetheless
- Our relatively positive positioning on gold. Gold’s resilience to disinflation, the strong dollar, high real interest rates and appetite for risk produced a 5% rise in H1.
What we misjudged:
- We were overall neutral core eurozone debt and US debt over H2, while in EUR, the former outperformed the latter (3% vs 0%). Our consistent underweight of index-linked bonds did not pay off as real interest rates and inflation compensations rose slightly
- Regarding equities, our neutral positioning was too timid, as the MSCI ACWI total return gained in 11% in H1
- We underestimated Japanese equities’ upside (we were underweight until May, then overweight hedged against forex)
- However, our neutral Tech US vs S&P 500 positioning was excessively cautious, while we had expected the sector to outperform in H2 2022
- We remained overweight commodities for too long, which was detrimental. The GSCI ended the period down in excess of 10% (in USD)
2022 (H2)
What we got right:
- Resuming exposure to equities at the end of the year
- Underweighting Europe vs the US in Q3
- Maintaining our neutral Japan
- Maintaining our underweight Small Caps until mid-December, when we changed to overweight
- Our positive bias on High Div (more specifically Dividend Growers) over virtually the whole period, before changing to neutral at the end of the year
- Regarding the Nasdaq, discontinuing our slightly overweight position in mid-October in favour of a neutral position
- Further flattening (and inversion) of the yield curve
- Underweighting index-linked bonds through H2
- Regarding commodities, eliminating mid-July our long position (especially for oil), which we had held through H1, and returning to neutral
- For forex, our structurally long EUR vs GBP from mid-September
What we misjudged:
- Our strategic switch on to resuming exposure to equities in the latter part of the year, which could have been more pronounced
- Overweighting bonds vs equities
- Overweighting US market vs European market in Q4
- Overweighting EM equities too soon
- We returned to overweight EM debt in mid-September, which was too soon. Nevertheless, EM debt has gained 1.6% in USD since our recommendation
- Among commodities, we should have been more clearly negative Oil vs Gold
- With regards to the EUR/USD, while the switch from long to neutral USD was timely, we should have moved to long EUR from the end of October
2022 (H1)
What we got right:
- We remained overweight commodities (27% in USD in H1
- We kept underweight sovereign bonds until early April when we adopted a neutral position
- We were underweight index-linked bonds
- We remained neutral credit, with a preference for US credit to the detriment of European credit
- Our underweighting of IG credit vs HY credit in Q1 (especially in the US) on account of the rise in bond yields
- From May, the decision to overweight US IG credit and underweight European HY credit (US IG gained in excess of 5% in EUR (2.7% in USD) while European HY credit dipped (0.2%)
- In early February, tensions with Russia led us rapidly to reduce the risk on our equity allocation (move to neutral) while increasing the weighting of cash
- On the forex markets, we very soon recommended a short euro. We anticipated the Swiss franc upturn and the yen decline relative to the dollar, and finally, we were right about the yuan (bearish until early June before adopting a neutral stance)
What we misjudged:
- The decision to remain overweight EM debt throughout the period was a mistake
- We should have been more aggressive when scaling back our equity position, as we did not move to strategically underweight until early June
- Our relative country picks (particularly US vs Europe) were mistimed (we overweighted Europe until early March then overweighted the US from early April, which did not prove appropriate)
2021 (H2)
What we got right:
- Overweight equities (since August) and cyclical commodities (especially overweighting oil throughout H2
- Underweight sovereign bonds and index-linked bonds (with a preference for European bonds as from Q4)
- From February 2021, we believed that US long-term yields were unlikely to exceed 1.60% persistently during 2021
- Maintaining our underweighting of sovereign bonds, particularly core eurozone bonds
- Our neutral credit position. Our long HY vs IG proved pertinent in both the US and Europe
- Our long cyclical commodities throughout H2
- The fact that we had no specific bet in terms of exchange rates was rather well adapted
- Our confidence about equities throughout H2 (MSCI World AC +10% in EUR)
- Our tactical overweighting of US equities over European equities starting in October
- Purely tactically, 73 of the 122 plays in our tactical allocation dashboard were proved right in H2 (60% vs 69% in H1).
What we misjudged:
- We were underweight gold, which however did rather well
- Our neutral EUR/USD did not prove appropriate
- Our overweight EM countries as from September was somewhat premature
- Our strategic overweighting of European equities over the perioe
- Our underweighting of UK equities from Q4
2021 (H1)
What we got right:
- Overweight equities until mid-May and neutral since then
- Some regional picks in favour of the MSCI UK in late January (+5% until mid-May) and the Eurostoxx in mid-March (+3% max until mid-June)
- Our short Japanese equities starting in May
- Overweight cyclical commodities throughout H1
- Underweight sovereign bonds (then less underweight from March)
- Underweight gold throughout H1 (-3.8% in H1)
- Neutral cash (until May, then overweight).
- Underweight sovereign bonds (then reduce from March)
- Long oil throughout H1, which was a good call (+50% in H1)
- Warning about microbubbles in early February was justified: MSCI Environment (-26% from peak to trough); MSCI Clean Energy (-34% from peak to trough); the bitcoin (-53% from peak to trough)
- Purely tactically, 76 trades (out of 110 in total) that we recommended in our tactical allocation dashboard proved correct in the first half of the year, or 69% of our recommendations.
What we misjudged:
- Our emerging debt pick (EMBIG) in the first two months of the year was less judicious
- Our overweight credit in the first two months of the year was not justified (very weak performance)
- Our long HY/IG throughout H1 was not pertinent.
- We should have been more aggressive regarding industrial metals.
- We recommended small caps, value and cyclicals too long, which did not really world out in the last two months of the half year
2020 (H2)
What we got right:
- We had predicted the second wave at the beginning of H2
- Overweight equities, credit and cyclical commodities
- Underweight bonds and gold
- Neutral cash
- Long euro vs USD
- Long euro-Sterling
- Overweight EM equities among equity markets
- Underweight UK market
- We denied the possibility of a US tech bubble several times
- Narrowing peripheral spreads strategy
- Overweight index-linked bonds
- Widening of the US-EU sovereign spread
- Outperformance of HY relative to IG
- Overweight industrial metals between July and November (+19% over the period)
- Overweight oil in December (+6%)
- We remained neutral risk assets between July and October, which proved pertinent (except in August)
- Stressing winning sectors: airlines, aerospace, hotels & hospitability, financials and oil & gas
What we misjudged:
- We should have been more positive regarding the renminbi
- Our USD-denominated sovereign debt play was not particularly useful (-1% in H2)
- When the second wave gained momentum in October, we adopted an even more defensive stance, which though justified was somewhat too late
- The idea of holding on to healthcare and reducing tech stocks among winning sectors
2020 (H1)
What we got right:
Before the bear market (before 19 February):
- From late January, our tactical allocation was extremely cautious when it transpired that the Chinese public health crisis was not factored in by the markets: underweight MSCI EM and cyclical commodities; underweight financials & long short defensives vs cyclicals; overweight gold and safe haven currencies (yen and Swiss franc); underweight global airlines, underweight hotels & tourism, transport, retail trade in the MSCI China; overweight healthcare and e-commerce
During the bear market (19 February-23 March)
- Continued defensive tactical strategy (see above + increased US equities weighting vs. rest of the world + extension of our put purchasing options strategy
- From 10 March, strategically overweight (six months) equities, credit, cyclical commodities, peripheral debt, USD-denominated and local currency EM debt, long convertible bonds
During the rally (23 March-end June)
- Somewhat defensive tactical positions (big caps, tech, defensives, US equity markets among equities, US dollar, gold and safe haven currencies (as hedging) until mid-May.
- A more positive bias in favour of risk assets in the short term from mid-May (cyclicals, Eurostoxx, Japanese market, etc.) Likewise, long MSCI ex China and ASEAN, long European small caps, long local-currency EM debt, long straddle
- Again a more cautious tactical bias from 9 June
What we misjudged:
Before 19 February, our message could have been more clear-cut
During the bear market;
- We did not adequately detect the market low (23 March)
- We returned too soon to risk assets in our strategic allocation (10 March)
As from 23 March;
- We maintained our long credit/equities too long and retained a conservative tactical bias until mid-May, which was no longer justified (purchase of puts, gold and safe haven currencies, tech, long Big caps/Small caps, short high beta sectors)
2019
What we got right:
- We always believed concerns about the global cycle (especially in H1) were excessive.
- We reiterated several times our conviction that the extended bull market, started on
9 March 2009, was not over yet. - Our decision in H1 to scale back exposure to the most risky HY segments (from neutral to underweight) and to increase it to the IG segment, tended to pay off
- Overweight commodities overall (in H1 and towards the end of the year mainly), especially for oil
- Overweight MSCI China, despite many investors’ fears about the adverse impact of the trade war (outperformance vs MSCI EM).
- Underweight Govies in H2 (+1.3% worldwide in EUR) and credit (4.5% worldwide in EUR) turned out positive in relative terms.
- Overweight Japanese equities throughout H2
- Renewed decision to favour peripheral eurozone debt to the detriment of core eurozone debt (Italy and later Greece)
- The same is true of EM debt
- We were right to a large extent not to take too pronounced a position on the five main exchange rates we cover. Stability prevailed overall.
What we misjudged:
- We should have been more aggressive in our equities allocation, especially on account of the strong performance of the US market, which we had not expected
- Overweight Japanese equities throughout H1
- With regards to emerging markets, upgrading them to overweight in August proved somewhat premature
- Our overweight Eurostoxx in the last two months of the year was not really justified
- Our excessively negative position on bonds in H1 (before bond yields started to rise in H2).
- We should have been more aggressive on the GBP
2018
What we got right:
- At the very beginning of the year, we had warned about the risk of correction. We returned to equities as early as 7 February, after the first correction of the year
- We always denied the existence of a tech bubble in the US
- We switched to overweight EM equities in Q4
- We became long commodities in early February
- We remained underweight Govies during the first three quarters of the year
- All along the year (as in 2017), we reiterated our interest in Portuguese debt, which outperformed the Bund
- Our neutral credit position all year long was justified in terms of risk/return
- We had predicted the Italian spread compression in Q3 2018 and did not believe in contagion from Italy to other peripheral bonds
- Our gold and yen hedging positions payed off in Q4
What we misjudged:
- We did not turn neutral (strategic allocation) on equities until November 2018, even though we had been cautious since August (tactical allocation)
- We too often overweighed European equities, which was only justified between March and May, and in December
- The same was true with regards to the EUR vs. USD
- We remained very slightly underweight sovereign bonds in Q4
- Our long commodities position in Q4 was our most serious mistake
2017
What we got right:
- Overweighting eurozone equities all through H1
- Overweighting EM equities between February and October
- Underweighting sovereign bonds for most of the year
- The further compression of European sovereign spreads, especially Portugal
- Overweighting gold in H1
- The idea of returning to the US market after the new fiscal stimulus package (early October)
- Our neutral credit position (with overweight eurozone and underweight US)
- Overweighting of the EUR, underweighting of the USD, and underweighting of the GBP for most of the year
What we misjudged:
- In general, our overall position on global equity markets proved excessively cautious
- Overweighting European equities was less appropriate in H2 than in H1
- Regarding exchange rates, our positions on the USD in early H1 were misguided
- Regarding commodities, we remained too long on gold (until the beginning of October) and neglected some of the upside potential for oil in H2 (up almost 40% in USD in H2).
2016
What we got right:
- The performance (in dollars) of the equity market in the first half
- Overweighting gold in H1
- Maintaining our neutral position on sovereign bonds in H1, and then being underweight from the beginning of October
- Our neutral position on credit at the beginning of the year and then an overweight position in October
- Our overweight on the FTSE 100 (currency hedged )
- The tactical upside potential of US (and then European equities ) post-Trump (starting November 14)
- Overweighting the Gilt and the Eurozone in H2
- Overweighting UK TIPS (currency hedged) (until November)
- In H1 kept our 1.10 assumption for the euro-dollar (1.12 on average in H1Following Trump's election, our new target for the euro-dollar was 1.05 (1.06 realized until the end of the year). We have been bearish Sterling all year long
- Our neutral position on commodities in H2
What we misjudged:
- Our excessively cautious position from the beginning of S2 until the election of Trump
- Overweighting gold in H2
- Our insufficiently aggressive position on commodities in H1
- Overweighting European bonds vs. US bonds in H1
- The compression of sovereign spreads in the euro area did not really occur
- The appreciation of the yen during most of the year and its post-Trump correction
2015
What we got right:
- Overweighting global equities and underweighting sovereign bonds in H1
- Our decision in early March to further reduce the equity weighting, moving to neutral / overweight and then moving to neutral in August while betting on the tactical rebound of October-November 2015
- Overweighting Japanese and Eurozone equity markets in H1
- Forecasting (May 6) the formation of the domestic stock market bubble in China, before its correction during the summer
- As regards sovereign bonds (we returned to neutral in August), our overweight Euro area V.S. USA (excluding currency effects)
- The continued compression of sovereign spreads (despite the Greek crisis), knowing that we had always ruled out the hypothesis of a Grexit in 2015
- Underweighting credit and bet on the outperformance of the European market v.s. the US (excluding currency effects).
- Currency: Our targets (i.e., 1.10 to the euro-dollar and 120 yen to the dollar) were achieved on the whole
- Maintaining the underweighting of the dollar to account for the potential depreciation of emerging currencies
What we misjudged:
- Remaining neutral on emerging markets equities (we should have been underweight)
- Same remark on commodities (neutral instead of underweight), given that we did not anticipate the plunge of oil prices in late 2015
- Overweighting inflation-linked bonds in the US and Eurozone was not justified in the second half of the year
- We were too optimistic with regard to the Sterling (neutral vs overweight)
2014
What we got right:
- The overweighting of global equities
- Our forecast of a 10% increase in the US market (11, 4% over the year)
- Reduced overweighting of global equities in July
- Some tactical choices: overweighting of emerging markets in July/August, overweighting of Japan in local currency in November/December, overweighting of MSCI China within emerging countries from the begining of August
- The outperformance of Eurozone bonds
- The continuation of spread widening between Eurozone and US yields
- The outperformance of emerging sovereign bonds (S1)
- The outperformance of US inflation-linked bonds (S1)
- The outperformance of high yield over investment grade (S1)
- Underweighting cash
- Overweighting US dollar
- Underweighting euro
- Underweighting yen
- Overweighting sterling until July, then our neutral position from august 2014
What we misjudged:
- Overweighting (in local currency) Continental Europe equities too early. This strategy started to work in January-February 2015
- The good risk-adjusted overall performance of sovereign bonds
- The good risk-adjusted performance of credit
- Overweighting financials vs. non financials within the creditsegment
- Overweighting high yield over US IG (S2)
- Some unfortunate tactical choices (overweighting the japanese equity market until early March, underweighting Dax in Europe in May/June)
- Our neutral position on commodities
2013
What we got right:
- The overweighting of global equities: performance (dividends reinvested) of the world market equities (MSCI World All Countries) was 7.9% in euro
- The overweighting of Japanese equities (hedged): + 32.8% (in euro, dividends reinvested)
- Within the Eurozone, the overweighting of the DAX (4.8% against 3.7% for the Eurostoxx)
- We sent several warning messages about risky assets at the beginning of February (Italian elections), in early April and early May, which proved to be justified
- The underweighting of government bonds (which generated negative performance in the 1st half), especially inflation-linked bonds.
- The outperformance of high yield over investment grade
- The credit neutral position
- The neutral position on the euro and the dollar
- The weaker yen
- The rising Sterling, as a result of the economic rebound in the UK (but only from March)
- The fall of gold, mentioned in various issues of Asset Allocation and remembered in our alert of 7 May
What we misjudged:
- The overweighting of emerging markets (until early June), as well as currencies and sovereign bonds.
- Concerning the United Kingdom, our overweight during the first half was not justified because of the decline of the Sterling early this year.
- The Sterling rise from the beginning of the year
- Within commodities, the overweighting of metals during the first 3 months of the year (it worked in January and a part of February)
2012
What we got right:
- The overweighting of global equities
- The overweighting of emerging stocks
- The overweighting of U.S. and U.K. equities and the underweighting of Eurozone equities until the summer
- We sent several warning messages regarding risky assets from the end of February. And we reiterated this message until the Asset Allocation of early August.
- Purchases in Italian building and public works sector from December 2011 to February 2012
- The overweighting of emerging sovereign bonds
- The outperformance of high yield over investment grade
- The return on European bank bonds starting from the summer (July)
- The return on peripheral bonds starting from summer (August)
- In currencies, the overweighting of emerging market currencies (although the increase was very small), the underweighting of the yen and the euro in the first five months of the year (-3% on an effective basis)
What we misjudged:
- Withdrawing our warning message only in early September, when we could have done it from the beginning of the summer
- Maintaining our overweight of emerging market equities in Q2
- Upgrading from our underweighting position in continental European equities in early September (reduction of underweight in August) when we could have done it at the beginning of the summer
- Underweighting of government bonds of developed countries (relative to cash) including the underweighting of OATs in the Eurozone
- In currencies, going neutral on the euro only in early September when we should have done it at the beginning of the summer
2011
2 periodes must first be distinguished
Before July 28th (editorial of July 28th), our strategy was quite offensive
- Our recommendations were quite correct (slightly positive performance of global equities, positive performance of high yield, outperformance of Dax, rising energy);
- On the credit part, our recommendations were largely satisfactory (overweighting of emerging market sovereign debt throughout the year and German Bunds from the summer, strengthening of TIPS earlier this year, underweighting of PIGS, etc.);
- There were some errors however (overweighting of emerging equities, favoring italian equities).
After July 28th, we returned to neutral on equities, high yield and cyclical commodities and overweighted cash
- We were mostly right (moderate decline in equities, cyclical commodities and high yield). Let us add that we overweighted the Bund. We made a mistake, however, in sticking to our overweight on emerging equities.
- From the beginning of the summer, we shifted to underweight on equities in the Eurozone, and it was justified
- We overweighted energy until the end of April (justified)
- We were right to underweight the euro, but we were wrong to overweight emerging currencies.
•Before July 28th (editorial of July 28th), our strategy was quite offensive
2010
What we got right:
- Continued overweighting of equities throughout the year
- Continued overweighting of the emerging equity market, with the three country picks (right from the January issue), that were very effective in 2010: Mexico, Turkey, and Russia, leaving aside our 2009 picks (China and Brazil)
- Continued overweighting of Dax in Europe
- Continued outperformance of high yield against investment grade in credit
- Idea that the re-pricing of sovereign debt was still ahead
- Potential of gold earlier in the year
- Our preference for German Bunds in government bonds
- Strengthening of bonds indexed to inflation
- Sent at short notice a message of great caution regarding stocks in May and June
- Mentioned the risk of a bond bubble in some segments (September issue)
What we misjudged:
- Mentioned the risk of a bond bubble in some segments (September issue)
- Early in the year, within developed equity market, we were overweight continental Europe. We returned to underweight in May and June due to the sovereign debt crisis, then we returned to overweight in our “summer strategy” (July and August), adopting a neutral position later.
- Underweighting of government bonds (position adopted earlier in the year, although our preference was for German Bunds in this asset class)
- Underweighting of gold in our summer strategy
- Idea (mentioned at the beginning of 2010 ) of a tightening of spreads between financial and non-financial: it worked in the U.S., but not in Europe.
2009
What we got right:
- Our return on the equity market in March (called "bear market rally" at first, then only “rally" in May)
- Our preference for credit over equities early in the year
- Our preference for European government bonds over stocks early in the year
- The reduction of sovereign spreads in Europe compared to the peaks early in the year (February and subsequent publications)
- The tightening of long-term spreads between the United States and Germany, and then its widening (in favor of Germany) (all year)
- The belief that long-term rates would remain at a low nominal trending level
- Our preference for US equities at the beginning of the year
- Our interest in gold (March issue and subsequent ones)
- Our interest in emerging markets (Brazil and China in the March issue), confirmed by overweighting of emerging markets
- Our overweighting of emerging sovereign debt (May issue)
- Our overweighting in financial credit (June issue)
- Our overweighting of Dax over Euro Stoxx (September issue)
What we misjudged:
- We stayed too long in the U.S. equity market (all first half)
- We overweighted investment grade over high yield for too long in credit (first half
