IDEA of the month: Further shift to safety on the back of increased risk perception from Japan and the MENA region
Reviewing the most recent news flow on the nuclear situation in Japan as well as the ongoing political unrest in the MENA region, leads us to continue to take out risk in our portfolio after we started to take out Equity exposure three week ago …..
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We now take out Commodities and go Long German government bonds. Due to the uncertainty about the development in Japan and in MENA we reduce our risk and continue to build up our cash position until we get more clarity about the nuclear situation in Japan and its potential impact on all asset classes. We have outlined in our latest Weekly Fund Flows edition (published on 11 March 2011) that in the backdrop of ongoing geopolitical turmoil in the MENA countries and a depleting risk appetite, the bonds appear to gradually gain attractiveness relative to equities. Total bonds have seen small inflows of 0.1% (current 4-week average) in contrast to outflows of 0.2% in beginning of January.
Adjustments to our index portfolio:
We expect the trend for depleting risk appetite to continue and to accelerate further as the flight to safety is gaining more and more momentum. Therefore, we close out our ‘Short IBOXX Euro Sovereigns Eurozone TR index’ position (20% weight in total) and Buy the ‘IBOXX Germany TR Index’ with 20% weight as we expect bond prices to rally (yields to decline). As commodity markets will become increasingly more volatile and unpredictable in the short-term, we further close out our position on the ’DBLCI – OY Balanced Commodity Index’ (10% weight) and shift the available 10% weight into the ‘EONIA TR Index’.
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Source: Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG