Investment strategy - Equities

Based on a set of potential scenarios, a range of 600 to 1,000 has been established for the Standard & Poor’s 500 index in the United States, the idea being to increase the equity allocation at the bottom end of the range and to decrease it at the top end.

 

 More concretely, the objective consists of being around 40% invested in equities at an S&P 500 level of 800 (mid-range), this percentage theoretically evolving as follows:

S&P 500 level	600	700	800	900	1000
Equity allocation	60%	50%	40%	30%	20%

 The range that is established is by definition subject to revision. It will be revised upwards if we consider that the economic and financial situation is improving and revised downwards if we consider it is deteriorating. 

The range has been established on the basis of the Standard & Poor’s index but the buy and sell signals are also used for European and Asian markets.

Based on the above, the weighting of equities was gradually increased during the weak periods in February and early March. It has subsequently been reduced, as stock markets gained ground during the second half of March and in April.

 

It follows from the above that we do not consider that the upturn in prices since mid-March constitutes the beginning of a new bull market.On the contrary, we believe that the economic environment remains particularly worrying and we will therefore continue to reduce the equity allocation if the current rally continues.

The exposure to the US and European equity markets is partly hedged via Futures, however. Given our concerns regarding the economic environment, very great importance is placed on the quality of the balance sheet of the companies in which we invest.

 Investment strategy - Bonds

The bond portion is mainly invested in euro-denominated government bonds, the idea being to avoid credit risks in this segment which, on the contrary, is meant to play a stabilising role during phases of stock market weakness.

The weighting of the bond portion is currently fluctuating at around 33%.  Changes in this weighting are decided according to the level of the 10-year German government bond yield. The aim is to reinforce the bond portion (or to increase its duration) when this yield approaches 3.3%.

 

 

Investment strategy - Currencies 

The breakdown by currency is as follows

 

 We do not currently see any reason to hedge the dollar exchange risk. On the contrary, the inverse correlation between the US currency and the equity markets (dollar appreciation versus the euro in stock market downturns, depreciation in phases of stock market upturns) is likely to continue such that the dollar currently represents a hedge against the equity risk. This is also the case for the yen.