The increased tensions in the Ukraine have made ING Investment Management more cautious, but are no reason to alter their risk-on stance. However, they have lowered the overweight position in equities and look for more contrarian exposure in commodities and real estate, as it seems that the balance of opportunity has shifted towards these asset classes.
For now, there is little reason to significantly adjust our general risk-on allocation stance in place as both fundamental and behavioural dynamics are still in support of risky assets. At the same time, it has to be acknowledged that the risks surrounding this base case scenario have increased.
Real estate and commodities outperform global equities
They have lowered our equity overweight…
A modest risk reduction in thier tactical allocation stance seemed prudent last week. Thinking about how to execute this, ING IM took into account where regional sensitivity was most influential, where valuation was most stretched and where positioning was most concentrated. With global equities reaching a new all-time at the end of February, attractiveness in the previously relatively cheap European equity markets having been eroded in recent weeks and generally still most risk taking amongst investors focused on equities, we decided to lower our equity overweight from medium to small.
…and shift our focus towards real estate, commodities
This also aligns well with their increased desire to look for more contrarian exposures in our asset allocation stance. As investor consensus is still heavily tilted towards equities while real estate and commodities are generally still unloved by active market players, the balance of opportunity seems to have shifted to the latter two asset classes. This has already been visible in the relative performance of these asset classes since the start of the year (see graph). It is one of the arguments to gradually relocate their allocation focus from equities towards real estate equities and commodities. Both are now overweight positions.
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