IDEA of the month: WE buy the Stoxx Utilities Index with 5% weight and take the money from the EONIA position.……
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The Utilities sector has been among the weakest performers over the last 12 months and has suffered from declining spreads between electricity prices and input costs (gas and coal prices) over the last years.
This trend may have come to an end and the Utilities valuation looks attractive in historical comparison. Our portfolio has posted a performance of 1.4% YTD .
In April our portfolio missed the strong equity performance due to low equity weight. We remain cautious on the sustainability of the recent equity rally and marginally increase our equity weight in the defensive Utilities sector. Our EM strategist continues to expect EM equities to underperform DM equities. One of his arguments is that high commodity prices will have a more negative impact on EM economies than on DM economies. We keep our EM equity short position which additionally suffered from the declining US-Dollar. We keep our equity position in the Stoxx Healthcare index. We also keep our 10% weight in the Commodity index. Commodities can continue to benefit from a trend towards real assets, strong EM growth and as a hedge against tail events like a strong rise in the oil price.
We also keep our Short IBOXX Euro Sovereign Eurozone Index and continue to expect rising 10Y bond yields supported by further rate hikes. Our economists expect the next ECB rate hike in July.
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Source: Trading Ideas ETF: Ideas and Flows – Deutsche Bank AG