3 Min Read
LUXEMBOURG (Reuters) - Banque de Luxembourg reckons these are dangerous times for investors, with structural headwinds likely to curb any equity bull market and threaten traditionally safe assets.
Guy Wagner, chief economist for the 8 billion euro ($10.75 billion) investor, said that in spite of some signs of economic recovery and last year's equity gains all is not well.
"It is not business as usual and you have to be very careful. There are a lot of things right now that could go wrong," he said in an interview that was part of the Reuters European Funds Summit in Luxembourg.
His main concern is the deleveraging being undertaken by both banks and, crucially, U.S. consumers. The latter remain a major engine of world growth, driving not only the U.S. economy but also exporting markets such as China and Japan.
Large government deficits are also a concern because of their impact on the ability of governments to engender growth.
While this would normally steer investors away from risky assets and into safer havens such as money markets and bonds, however, the current low yields are neither attractive nor stable.
"The problem is that risk free assets are no longer risk free," he said.
The result is that Banque de Luxembourg is underweight equities in its portfolios. One of its mixed asset funds, for example, can hold anything from 65 percent to 35 percent of its assets in stocks with 50 percent being neutral.
The fund is currently holding around 40 percent in stocks.
Wagner said his firm was similarly cautious about emerging market equities, generally a big favorite with investors.
Again, the bank is underweight in its funds.
"There was so much money going into Asia last year, we thought it might be better to wait for a correction," Wagner said.
In its main emerging market funds, it is very underweight in eastern Europe, underweight in Latin America and slightly underweight in Asia, and, overall, focuses on companies with quality earnings and high dividends.