Deutsche Bank – Synthetic Equity & Index Strategy – Global
The Flow Whisperer – TAARSS says prefer a mix of bonds and equities in Q1
Download the complete report:
Tactical Asset Allocation Relative Strength Signal (TAARSS) Monthly Update
In Q1, prefer fixed income, followed by equities, and away from commodities. Still prefer longer maturities, but lower the duration within fixed income.
Market review
The end of the year brought additional weakness to Commodities (DBC) and Global equities (ACWI) which lost 9.65% and 2.37%, respectively. While US Bonds (AGG) edged higher by 0.15%.
TAARSS rotation strategy quarterly and monthly performance review
Monthly and quarterly TAARSS strategies were mostly negative in December and Q4, respectively. However performance relative to benchmarks was mixed. In December, monthly strategies outperformed their benchmarks on the equity side; while they lagged their benchmarks outside equities. In Q4, the multi asset rotation outperformed most of its benchmarks, while the fixed income duration rotation outperformed its benchmark.
Tactical positioning for Q1 and January 2015
Unlike Q4, TAARSS signals suggest better investment demand support, and hence less volatility, for fixed income and equities in Q1. More specifically, TAARSS recommends a balanced allocation to fixed income and equities; away from commodities during Q1 2015. Within fixed income, TAARSS still recommends a preference for long term duration, but with some intermediate exposure for the current quarter.
For the month of January, TAARSS equity positioning indicates a preference for the US with some international DM exposure; and away from EM. Overall prefer North American equities, stay neutral towards Europe and Asia Pacific, and away from Latin America. For the US, a broad exposure seems appropriate, but with overweight to Small Caps; sector wise prefer Defensive sectors or Consumer Discretionary in the US. Specific DM countries seem weak across the board; prefer regional exposures with currency hedge, if desired. In EM countries prefer India and China. Other interesting equity themes are Infrastructure and Transportation. In terms of fixed income sectors, TAARSS favors MBS, Convertibles, Intl DM debt, and Municipals while steering away from EM debt and Senior Loans. Avoid commodities, according to TAARSS.