The PARSUMO Contrarian Indicator Equity (PCE) is currently showing an equity ratio of 43,7%, which indicates slightly positive equity index returns over the next 12 months. After reaching record highs in March 2015, equity ratios have fallen for the sixth successive quarter. The recommended equity position in many investment strategists’ portfolios has been reduced to such an extent that for the first time in three years one can expect equity returns above zero.
The quarterly published NZZ Anlagepanorama, which offers an overview of the equity ratios recommended by banks and asset managers, fell again in the third quarter of 2016 in comparison to the previous quarter. The average recommended equity ratio for a mixed portfolio is 43,7%, still 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, that a recommended equity ratio of 43,7% will in all probability lead to positive, however 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 expected index return over the next 12 months resulting form the equity quota is now positive for the first time in three years. The current forecast for the MSCI World is 3%. The PARSUMO Contrarian Indicator Equity recommends a neutral equity weight as the expected return is still below the long-term average index return of the MSCI World.
Jacques Stauffer, CEO
Hans Peter Stücheli, Senior Portfolio Manager
PARSUMO Capital AG
Förrlibuckstrasse 30, 8005 Zurich
Tel. +41 43 288 29 00