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Saxo Asset Allocation for January 2011
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Saxo Asset Allocation for January 2011

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Our Asset Allocation Model maintains its “Moderately Bullish” stance as the Global …

Our Asset Allocation Model maintains its “Moderately Bullish” stance as the Global
Business Cycle Indicator improved slightly in December. The model suggests big positions
in equities and bonds

Published in Economy & Finance
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  • 1. January 3, 2011David KarsbølChief Economistdka@saxobank.com+45 3977 4330 Saxo Asset Allocation for January 2011 Moderately Bullish Our Asset Allocation Model maintains its “Moderately Bullish” stance as the Global Business Cycle Indicator improved slightly in December. The model suggests big positions in equities and bonds. Asset Allocation Weights Scenario MSCI World MSCI EM Commodities Bonds Moderate Bullish 43% 6% 11% 40% Portfolio In order to directly or synthetically create the suggested exposure in the present scenario, an investor should allocate capital as follows: Position Exposure Name (ticker) Long 43% iShares MSCI World (IQQW:xetr) Long 6% iShares MSCI IM (IEMM:xams) Long 11% Lyxor CRB ETF (CRB:xpar) Long 20% iShares 1-3 Year US Treasuries (SHY) Long 20% iShares 1-3 Year EUR Treasuries (IBCA) * A EUR-denominated investor should get rid of the implicit currency exposure in the portfolio by buying EURUSD worth 10% of the capital allocated to the portfolio. For an investor with a 1 million EUR portfolio, this would equal 100,000 EURUSD. Performance Our benchmark (grey line) is a constant weight index consisting of returns from 33% EFFA +10 year Treasuries, 33% MSCI World and 33% CS Tremont Long/Short Equities. The model return for December was 2.68%* (EUR) before costs and taxes, primarily due to the equity exposure. Performance (EUR) Accumulative capital 6.0 5.0 4.0 3.0 2.0 1.0 0.0 1994 2006 2008 2010 1996 1998 2000 2002 2004 Model Benchmark Backtesting performance: July 1994 - November 2008. Realised performance: December 2008 - Source: Bloomberg and Saxo Bank Strategy & Research
  • 2. January 31, 2011*Past performance disclaimerThis publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of past performancedisplayed on this publication will not necessarily be repeated in the future. No representation is being made that any investment will or islikely to achieve profits or losses similar to those achieved in the past or that significant losses will be avoided.Statements contained on this publication that are not historical facts and which may be simulated past performance or future performancedata are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Such statements involve knownand unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this publication maycontain forward-looking statements. Actual events or results or actual performance may differ materially from those reflected orcontemplated in such forward-looking statements.Global Business Cycle IndicatorOur global business indicator in an expression of how much global economic activity isaccelerating or decelerating. We now have acceleration, but the momentum is fadingout. Saxo Bank Global Business Cycle Indicator 1.5 1.0 0.5 0.0 -0.5 -1.0 -1.5 -2.0 -2.5 -3.0 -3.5 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009Source: Bloomberg and Saxo Bank Strategy & Research Saxo Bank Global Business Cycle Momentum Indicator 4.0 3.0 2.0 1.0 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009Source: Bloomberg and Saxo Bank Strategy & ResearchMethodologyThe Saxo Asset Allocation is based on the Saxo Global Business Cycle Indicator, which isagain based on country indicators for the following ten (10) countries: NZD, AUD, CAD,JPY, EUR, GBP, USD, CHF, SEK, and NOK. These country indicators, which are designedto reflect the macroeconomic strength of each economy, are based on 22 individualeconomic time series for each country. The Saxo Global Business Cycle Indicator takesthe country indicators and weighs them by the size of their Gross Domestic Product(GDP).The Saxo Global Business Cycle Indicator is constructed to show the activity in the globaleconomy, as represented by the ten (10) countries. The interpretation behind the scaleis that zero (0) reflects a global economy, which is growing at trend. A positive value(>0) means that the global economy is growing above trend while a negative value (<0) 2
  • 3. January 31, 2011indicates that the global economy is growing below trend. Therefore a value below zero(0) does not necessarily reflect a shrinking global economy.The Saxo Global Business Cycle Momentum Indicator is simply the smoothed change inthe Saxo Global Business Cycle Indicator and is therefore an indication of whether theglobal economy is gaining or losing momentum.The allocation weights have been designed to reflect four (4) underlying economicscenarios ranging from „Outright Bearish‟ over „Moderately Bearish‟ and „ModeratelyBullish‟ to „Outright Bullish‟. The Saxo Bank Global Business Cycle Momentum Indicatorcaptures the strength of the changes in the economy and selects the appropriatescenario accordingly. Asset Allocation WeightsScenario MSCI World MSCI EM Commodities BondsOutright Bullish 30% 5% 45% 20%Moderate Bullish 43% 6% 11% 40%Moderate Bearish 12% 8% 0% 80%Outright Bearish -20% -5% -5% 70%BacktestingThe model has been backtested from July 1994 to November 2008 and has in this periodyielded 285% or 0.79% per month before costs and taxes*. Future performance isdependent on costs as charged by your provider and slippage, and may therefore not beidentical to the realised return reported in this publication. Performance in thispublication is based on end-of-month prices from Bloomberg.*Past performance disclaimerThis publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of past performancedisplayed on this publication will not necessarily be repeated in the future. No representation is being made that any investment will or islikely to achieve profits or losses similar to those achieved in the past or that significant losses will be avoided.Statements contained on this publication that are not historical facts and which may be simulated past performance or future performancedata are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Such statements involve knownand unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this publication maycontain forward-looking statements. Actual events or results or actual performance may differ materially from those reflected orcontemplated in such forward-looking statements.Model rebalancingThe model is rebalanced once a month on the first Danish business day before 12:00CET. The model is rebalanced according to the scenario indicated by the Saxo GlobalBusiness Cycle Momentum Indicator. 3
  • 4. January 31, 2011For more trading commentary on forex, equities, and commodities go to www.tradingfloor.com or www.saxobank.comNON-INDEPENDENT INVESTMENT RESEARCHThis investment research has not been prepared in accordance with legal requirements designed to promote the independence of investmentresearch. Further it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Saxo Bank, its affiliates orstaff, may perform services for, solicit business from, hold long or short positions in, or otherwise be interested in the investments (includingderivatives), of any issuer mentioned herein.None of the information contained herein constitutes an offer (or solicitation of an offer) to buy or sell any currency, product or financialinstrument, to make any investment, or to participate in any particular trading strategy. This material is produced for marketing and/orinformational purposes only and Saxo Bank A/S and its owners, subsidiaries and affiliates whether acting directly or through branch offices(“Saxo Bank”) make no representation or warranty, and assume no liability, for the accuracy or completeness of the information provided herein.In providing this material Saxo Bank has not taken into account any particular recipient‟s investment objectives, special investment goals,financial situation, and specific needs and demands and nothing herein is intended as a recommendation for any recipient to invest or divest in aparticular manner and Saxo Bank assumes no liability for any recipient sustaining a loss from trading in accordance with a perceivedrecommendation. All investments entail a risk and may result in both profits and losses. In particular investments in leveraged products, such asbut not limited to foreign exchange, derivates and commodities can be very speculative and profits and losses may fluctuate both violently andrapidly. Speculative trading is not suitable for all investors and all recipients should carefully consider their financial situation and consult financialadvisor(s) in order to understand the risks involved and ensure the suitability of their situation prior to making any investment, divestment orentering into any transaction. Any mentioning herein, if any, of any risk may not be, and should not be considered to be, neither acomprehensive disclosure or risks nor a comprehensive description such risks. Any expression of opinion may be personal to the author and maynot reflect the opinion of Saxo Bank and all expressions of opinion are subject to change without notice (neither prior nor subsequent).This publication refers to past performance. Past performance is not a reliable indicator of future performance. Indications of past performancedisplayed on this publication will not necessarily be repeated in the future. No representation is being made that any investment will or is likely toachieve profits or losses similar to those achieved in the past, or that significant losses will be avoided.Statements contained on this publication that are not historical facts and which may be simulated past performance or future performancedata are based on current expectations, estimates, projections, opinions and beliefs of the Saxo Bank Group. Such statements involve known andunknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this publication may containforward-looking statements. Actual events or results or actual performance may differ materially from those reflected or contemplated in suchforward-looking statements.This material is confidential and should not be copied, distributed, published or reproduced in whole or in part or disclosed by recipients to anyother person.Any information or opinions in this material are not intended for distribution to, or use by, any person in any jurisdiction or country where suchdistribution or use would be unlawful. The information in this document is not directed at or intended for “US Persons” within the meaning of theUnited States Securities Act of 1993, as amended and the United States Securities Exchange Act of 1934, as amended.This disclaimer is subject to Saxo Banks Full Disclaimer available at www.saxobank.com/disclaimer.SupervisionThe Saxo Bank Group is under the supervision of the Danish Financial Supervisory Authority (In Danish: "Finanstilsynet") and is subject to theDanish Executive Order on Good Business Practice for Financial Undertakings.Saxo Bank A/SPhilip Heymans Allé 152900 HellerupDenmarkPhone: +45 39 77 40 00Reg. No. 1149CVR. No. 15731249 4