Deutsche Bank – Synthetic Equity & Index Strategy – Global
The Flow Whisperer – TAARSS says prefer defensive asset classes in February
02 February 2016 (22 pages/ 849 kb)
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Tactical Asset Allocation Relative Strength Signal (TAARSS) Monthly Update
Top recommendations for February: US Treasuries, Gold, High Grade Credit, and US Utilities.
Massive flight to safety during January suggests global equity headwinds to continue in February
ETF flow trends suggest that investors dumped equities in favor of safe haven assets such as US Treasuries and Gold during January (Figure 1). The trends of all of our main equity rotation strategies (markets, regions, US sizes) turned negative at the same time for the first time since August 2011 when markets were experiencing volatility due to the Greek crisis. Furthermore, we have only seen all global equity rotation trends (i.e. markets and regions) turn negative in four occasions since 2007, with each of those occasions being followed by a weak month for global equities recording losses between 3% and 10%.
Tactical positioning for February based on TAARSS
For Global Equities we recommend to avoid them altogether (particularly EM), or prefer DM ex US (mainly Europe and Asia Pacific) exposures.
- For US equity prefer a sector approach. We favor Utilities and Telecom for February. We highlight Energy as a possible recovery trade.
- For Intl DM equities prefer global regional allocations (e.g. EAFE-like) instead of other sub regions or country exposures.
- For EM equities we see weakness across the board and recommend steering away from them in February.
- In Fixed Income, prefer US Treasuries and IG credit over HY credit. And in Commodities, prefer Gold.