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Article / 30 May 2016 at 15:00 GMT

ETF Portfolio Update: Troubled waters

CIO / Saxo Private Bank
  • Q1'16 a difficult one for ETF portfolio
  • Falling yields lift returns for gov't bonds
  • US growth will help to lift ambient negativity

Q1 2016
The first quarter of 2016 has been a challenging one. Photo: iStock 

By Teis Knuthsen

In this note, I update our ETF portfolios with returns up until the end of the first quarter. The four ETF portfolios are constructed as global, multi-asset portfolios with the European investor in mind. 

To reduce currency exposure, we have concentrated fixed income exposure on EUR-denominated asset classes, except for emerging market bonds which are USD-based (hard currency issues). 

Equity exposure is invested in global, developed markets (MSCI World and MSCI World Minimum Volatility) and emerging markets (MSCI EM), replicating an MSCI All-Countries universe.

In general, we aim to provide a transparent, familiar and robust asset allocation universe, suitable for medium to long-term investors. The ETFs are UCITS compliant and approved for distribution in most European countries. You can read more about the portfolios here.

Economics and earnings a drag on equities

Market conditions were difficult through most of 2015. Overall, satisfying returns were to a large part generated during the first third of the year, and almost entirely by developed equity markets.

A nervous end to the year has been carried into the first part of 2016, with substantial selloffs in global equity markets. As in Q1 2015, falling bond yields have lifted returns for government bonds.

The four portfolios thus have little to show for themselves, so far this year. The conservative strategy has fared the best, with a gain of 0.2%. In contrast, the three more risky portfolios have lost between 0.3% and 2.2%.

Portfolio returns (note: returns for 2016 until end March):
Portfolio returns

Source: Saxo Bank, Bloomberg

In the table below we show a detailed breakdown of the performance.

Detailed breakdown of Q1 portfolio returns:
Portfolio returns
Asset allocation and portfolio construction

The four portfolios are modestly overweight equities, through overweight low-beta and developed markets. I have underweighted short-duration government bonds and corporate credit, but have added exposure to property yields.

Though markets remain somewhat unsettled, I expect the prevalent negativity to lift in the coming months, driven in part by a more robust development for the US economy.

Portfolio composition:
Portfolio composition
Source: Saxo Bank, Bloomberg

— Edited by Michael McKenna

Teis Knuthsen is CIO of Saxo Private Bank.
30 May
Bent L Bent L
Dear Teis. EUNL and IQQ0 are 60% in US Stock so 60% are carrying a USD risk. Am I right?

Regards Bent
31 May
Teis Knuthsen Teis Knuthsen
Hi Bent. Both funds are denominated in EUR, but the underlying currency exposure is open. That means the returns are influenced by currency swings. For example, if the USD rises then it adds to the return measured in EUR on top of the equity returns.


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