Avril 2012: Buying Healthcare sector and increasing the equity weight

This month we buy the Stoxx600 Healthcare index with 5% weight. According to our CROCI team analysis Healthcare is the only deep value sector on a global basis. The Healthcare sector allows investors to buy a much more stable    


Enregistrez-vous pour le Newsletter sur les ETF et ETC
Cliquez ici pour recevoir votre copie gratuitement

earnings stream compared to the Stoxx600 without paying significant P/E premium .

With this step our portfolio still has a low 20% net equity weight and thereof 15 percentage points in defensive sectors Utilities and Healthcare. The equity market has been on the weaker side in the last weeks on the back of weaker economic data, from the US as well as the Eurozone. European Banks have been among the weakest sectors over the last month as the Euro sovereign debt crisis has come into the focus again. So it was beneficial for our portfolio that we had sold the Stoxx 600 Banks index one month ago. In our view, the pressure on the equity market could well continue in the coming weeks.

We stick to our positions in the MSCI Japan, in Gold and in Oil. The MSCI Japan also gives Yen exposure and the YEN tends to appreciate in times of risk aversion and gives currency diversification outside the Euro. Gold should give the portfolio some downside protection, if central banks surprise the market with more easing monetary policy measures. Oil price has held up well relative to news flow on the economic slow down.

We stick to our Crude Oil position as protection against political risk and supply side disruptions. We also stick to our Short IBoxx Euro sovereign position with 15% weight. We see more risks of rising yields than a continuing decline.

We find the risk/return profile of the EM Liquid Eurobond index more attractive than Eurozone sovereigns.

Our absolute return cross asset portfolio earned a a return of 1.0% YTD after 2.1% in 2011, 10.3% in 2010 and 12.0% in 2009 .

Portfolio Position Rational


Japan has the second highest trade surplus of all countries globally in 2010 and a high earnings growth for 2011 of 20% and for 2012 of 25% partly due to recovering earnings after the earthquake. The MSCI Japan also gives
Yen exposure and thereby currency diversification outside the Euro. Especially, in times of risk aversion the Japanese Yen should benefit.

10.0% Stoxx 600 Utilities TRN Index

Utilities performance has strongly suffered over the last years and we see rising chances of a recovery. Utilities sector is relatively immune to current key risks for the overall European equity market. Further arguments for Utilities include 1) the potential improvement of the supply/demand situation, if loss making generation capacity is closed, 2) the negative impact of the gas-to-oil spread should continue to fade by 2013, 3) a high dividend yield.

5.0% S&P 500 Index

Reasons for the US to outperform the Eurozone are: 1) the GDP growth gap which is expected to reach a 20 year record high of 2.8 pp in 2012E: US GDP growth 2012E of +2.7% compared to -0.2% for the Eurozone, 2) a less restrictive fiscal policy in the US, 3) better economic data recently from the US than from the Eurozone.


Admittedly, the recent economic data in the US also came in on the weaker side.

5.0% Stoxx 600 HealthCare Index

According to our CROCI team analysis Healthcare is the only deep value sector on a global basis. The Healthcare sector allows investors to buy a much more stable earnings stream compared to the Stoxx600 without payingsignificant P/E premium.

15.0% Emerging Markets Liquid Eurobond Index

The main reason for the buy was the attractive coupon. We clearly admit that this is a high risk investment. It offers some sort of regional diversification to our other largely developed countries exposure with the two major regional blocks Latin America and Emerging Europe.

10.0% Euro Inflation Swap 5 Year Total Return Index

The inflation swap index offers protection against rising inflation without suffering from rising interest rates. A monetary policy that is too easy at the global level is driving the prices of goods, services, commodities, and assets. The uncertainty about the longer-term inflation outlook has risen substantially in the light of the rising oil and commodity prices.

15.0% Short IBOXX Euro Sovereigns Eurozone TR Index

We expect continuing rising bond yields considering the continuing peripheral stress as well as the possible downgrade of further sovereigns in Europe. The rising fiscal deficits and higher debt issuance by governments seem to be not fully reflected in bond market prices so far.

10.0% DB Physical Gold Euro HE

We view tail event protection such as a break-up of the euro zone as sustaining private sector demand for gold.
Aside from negative real interest rates and a weak US dollar environment, we believe gold prices have also benefited from a significant rise in the US equity risk premium over the past decade. Moreover, gold can have a strong diversification effect in a portfolio as it is likely to move up if risk aversion continues to increase.

5.0% DB Brent Crude Oil Booster

Escalation of geo-political tensions in Middle East and Iran remains a major risk for capital markets and we protect our portfolio against this risk. Also unexpected outages in Nigeria and the North Sea could keep tightened Brent oil market. We expect the oil prices to remain firm given our expectation of 2012 world GDP growth above 3%.

10.0% EONIA TR Index

We think a high cash position is appropriate as risks are higher than implied volatility suggests.

5.0% Fed Funds Effective Rate Total Return Index

Despite the Greek PSA being the risks for the Euro remain elevated, in our view. This US-Dollar position gives us downside protection in case of strong negative surprises in the Eurozone. We think currency diversification outside the Euro is important.
 levels in the Eurozone we also think currency diversification outside the Euro is important.


Source: 10 Avril 2012:  Absolute Return Index portfolio – Deutsche Bank AG

Global Disclaimer

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively « Deutsche Bank »). The information herein is believed to be reliable and has been obtained from public sources believed to be reliable. Deutsche Bank makes no representation as to the accuracy or completeness of such information. Deutsche Bank may engage in securities transactions, on a proprietary basis or otherwise, in a manner inconsistent with the view taken in this research report. In addition, others within Deutsche Bank, including strategists and sales staff, may take a view that is inconsistent with that taken in this research report. Opinions, estimates and projections in this report constitute the current judgement of the author as of the date of this report. They do not necessarily reflect the opinions of Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a recipient thereof in the event that any opinion, forecast or estimate set forth herein, changes or subsequently becomes inaccurate. Prices and availability of financial instruments are subject to change without notice. This report is provided for informational purposes only. It is not an offer or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy. Target prices are inherently imprecise and a product of the analyst judgement.
As a result of Deutsche Bank’s recent acquisition of BHF-Bank AG, a security may be covered by more than one analyst within the Deutsche Bank group. Each of these analysts may use differing methodologies to value the security; as a result, the recommendations may differ and the price targets and estimates of each may vary widely.
Deutsche Bank has instituted a new policy whereby analysts may choose not to set or maintain a target price of certain issuers under coverage with a Hold rating. In particular, this will typically occur for « Hold » rated stocks having a market cap smaller than most other companies in its sector or region. We believe that such policy will allow us to make best use of our resources. Please visit our website at to determine the target price of any stock.

The financial instruments discussed in this report may not be suitable for all investors and investors must make their own informed investment decisions. Stock transactions can lead to losses as a result of price fluctuations and other factors. If a financial instrument is denominated in   currency other than an investor’s currency, a change in exchange rates may adversely affect the investment. Past performance is not necessarily indicative of future results. Deutsche Bank may with respect to securities covered by this report, sell to or buy from customers on a principal basis, and consider this report in deciding to trade on a proprietary basis.

Unless governing law provides otherwise, all transactions should be executed through the Deutsche Bank entity in the investor’s home jurisdiction. In the U.S. this report is approved and/or distributed by Deutsche Bank Securities Inc., a member of the NYSE, the NASD, NFA and SIPC. In Germany this report is approved and/or communicated by Deutsche Bank AG Frankfurt authorized by the BaFin. In the United Kingdom this report is approved and/or communicated by Deutsche Bank AG London, a member of the London Stock Exchange and regulated by the Financial Services Authority for the conduct of investment business in the UK and authorized by the BaFin.

This report is distributed in Hong Kong by Deutsche Bank AG, Hong Kong Branch, in Korea by Deutsche Securities Korea Co. This report is distributed in Singapore by Deutsche Bank AG, Singapore Branch, and recipients in Singapore of this report are to contact Deutsche Bank AG, Singapore Branch in respect of any matters arising from, or in connection with, this report. Where this report is issued or promulgated in Singapore to a person who is not an accredited investor, expert investor or institutional investor (as defined in the applicable Singapore laws and regulations), Deutsche Bank AG, Singapore Branch accepts legal responsibility to such person for the contents of this report. In Japan this report is approved and/or distributed by Deutsche Securities Inc. The information contained in this report does not constitute the provision of investment advice. In Australia, retail clients should obtain a copy of a Product Disclosure Statement (PDS) relating to any financial product referred to in this report and consider the PDS before making any decision about whether to acquire the product. Deutsche Bank AG Johannesburg is incorporated in the Federal Republic of Germany (Branch Register Number in South Africa: 1998/003298/10). Additional information relative to securities, other financial products or issuers discussed in this report is available upon request. This report may not be reproduced, distributed or published by any person for any purpose without Deutsche Bank’s prior written consent. Please cite source when quoting.


rated “BB”. 13% of the basket is rated “B” and this is one issuer, Venezuela. So the country
with the biggest weight in the index is also the country with the lowest rating. While
Venezuela is clearly a high risk country with 13% weight in the index, the remaining countries
are clearly more solid (for more details on the “MSCI USA TRN” ETF see ETF: Ideas and
Flows, 25 November 2009).
“db x-trackers Currency valuation” ETF 20% weight
In currency markets the majority of the participants are “liquidity seekers”. “Profit seekers”
are a minority in currency markets and can generate returns on the expense of the “liquidity
seekers”. Profit-seekers can generate returns by buying “under-valued” currencies and
shorting “over-valued” currencies. A widely used measure to determine “under-valued” and
“over-valued” valuation for currencies is the concept of “Purchasing Power Parity” where
“fair” exchange rates are calculated by comparing the prices of a basket of goods in different
countries. The ETF “db x-trackers Currency valuation” buys each quarter the three currencies
with the “lowest” valuation out of the universe of the G10 currencies and sells the three
currencies with the “highest” valuation using the PPP concept. In addition, the correlation to
equities and bonds is very low and therefore the currency valuation index helps to diversify
our ETF portfolio. The index is currently long in the US Dollar, New Zealand Dollar, and the
British Pound whereas the index is short in the Swiss Franc, Swedish Krona and the
Norwegian Krona. Risks to the investment include that currencies movements become less
rational again. Especially increased uncertainty about the economic development could
trigger a flight back into expensive currencies like the Swiss Franc (for more details on the
“db x-trackers Currency valuation” ETF see ETF: Ideas and Flows,12 June 2009).
Trading portfolio
We have kept the portfolio unchanged this time. Earlier we bought the “Emerging Markets
Liquid Eurobond Euro Index” ETF with 10% weight and sold the “db x-trackers DJ Stoxx
Global Dividend 100 ETF”. The portfolio targets absolute return and has the EONIA index as

Articles similaires

12 January 2013: We increase our portfolio risk this month


19 september 2012: Adding risk via Corporate HY Credit and (to a lesser extent) via Europe equity


18 july 2012: Introducing China Health Care and IG EUR corporate credit to our portfolio