The PARSUMO Contrarian Indicator Equity (PCE) is currently showing an equity ratio of just under 45%, which indicates below-average equity index returns over the next 12 months. After reaching record highs in March 2015, equity ratios have fallen slightly for the fifth successive quarter. Many investment strategists remain heavily invested in equities, which continue to point to a fragile stock market environment.
The quarterly published NZZ Anlagepanorama, which offers an overview of the equity ratios recommended by banks and asset managers, fell by 0,6 percentage points in the second quarter of 2016 in comparison to the previous quarter. The average recommended equity ratio for a mixed portfolio is 44,7%, above the historical average and indicative of the current preference for equities, which appear the most attractive alternative in today’s low interest rate environment.
Our analysis of the historical data shows, however, that a recommended equity ratio of 44,7% will in all probability lead to below-average equity index returns over the subsequent 12 months. This is the result of investor behavior, which can be explained by findings from the field of behavioral finance (herd behavior, hyperbole and understatement, etc.).
The PARSUMO Contrarian Indicator Equity will continue to advocate an underweighting in equities as long as the equity ratio points to an expected negative index return over the next 12 months. The current forecast for the MSCI World is –0,2%.
Jacques Stauffer, CEO, and Hans Peter Stücheli, Senior Portfolio Manager
PARSUMO Capital AG
Förrlibuckstrasse 30, 8005 Zurich
Tel. +41 43 288 29 00