Mandatum Life Allocation portfolio management – May
ML Allocation basket returns were between -5.0 % and -0.03 % in May.
Global economic growth is expected to slow down to around +3.2% in 2019 (+3.6% in 2018). Companies’ confidence indices predicting economic activity weakened again in May. One factor behind the weakened confidence is the escalation of the trade war between the US and China. However, the likelihood of a global downturn continues to be low and the central banks have communicated their readiness to stimulate the economy if required.
We have reduced the weight of emerging market equities in our portfolios. Following the most recent measures, equities are now moderately underweight. The escalation of the trade war has increased uncertainty, which can be seen especially in the emerging equity markets and emerging market currencies. Furthermore, companies’ earnings forecasts have been revised down again globally and companies’ confidence indices have weakened. The reduction in equity weight was realized by selling a China ETF investment and reducing funds that invest broadly in emerging markets. These measures are tactical in nature, and we are ready to re-increase the equity weight, if trade talks, the development of companies’ earnings forecasts or economic development show positive signs again.
In fixed income investments, the focus is on Nordic corporate bonds, in which we still see good return potential. Due to the low return level, we underweight European government bonds, in particular. The interest rate risk of fixed income investments, measured by duration, has been kept more moderate than the market index. In May, we made an additional alternative investment from the ML International Real Estate I investment basket in the Meridia IV fund, which invests to the Spanish real estate market, primarily in Madrid and Barcelona.