Mandatum Life Allocation portfolio management – February
ML Allocation basket returns were between -0.05% and -0.92% in February.
The equity market return expectation for the near future has become more moderate as a result of the rise in stock prices. However, economic recovery is expected to strengthen earnings growth this year, which will support stocks. The recovery of the economy improves the outlook of cyclical sectors in particular, such as industrials and financials. Similarly, in interest rate sensitive sectors, such as technology, utilities, consumer staples and health care, the rise in interest rates puts pressure on the valuation level. We currently consider the sector allocation to be key in terms of the return formation of the equity portfolio. Since November, we have gradually adjusted the equity investments in a more cyclical direction, which we continued with in February. In the market turbulence created by the interest rate surge, the emerging markets showed weak returns. We saw this as an opportunity to increase investments in the emerging markets with a focus on Asia, which has a good long-term outlook according to our insight. Similarly, we reduced the fund investing globally with a sustainability focus, of which a large proportion consists of more stable interest rate sensitive sectors.
The credit risk premiums on corporate bonds have remained low, but the interest rate level has taken a turn upwards also in the euro zone, due to which the return expectation is low and there are few attractive opportunities. Therefore, we have allowed the weight of cash and equivalent money market investments to increase in the portfolios. We have moderately increased the proportion of European senior loans in the portfolios. Senior loans are relatively attractive, because their return level has not been affected by the central bank policy as much as bonds. This year, the return development of fixed income investments has been good: we have been successful in our corporate bond weights and, thanks to the moderate interest rate risk, we have not suffered much from the rise in interest rates.
According to our view, alternative investments will continue to play a key role also after the coronavirus crisis in building a long-term, well-diversified investment portfolio. We continue to see opportunities in alternative fixed income investments. In real estate investments, we invest with portfolio managers specialised in property development, who are good buyers and have the ability to refine properties through active measures. Diversification across various types of real estate is all the more important in the current environment. In private equity investments, we are selectively active, looking for individual projects that are not debt-driven.