The PARSUMO Contrarian Indicator Equity (PCE) is currently showing an equity ratio of 46,7%, which will likely lead to negative equity index returns over the next 12 months. After an increase in the fourth quarter of 2016 for the first time after a steady decline since March 2015, the PCE Indicator showed a small decline in the fist quarter 2017.
The quarterly published NZZ Anlagepanorama, which offers an overview of the equity ratios recommended by banks and asset managers, reduced in the first quarter of 2017 in comparison to the previous quarter. The average recommended equity ratio for a mixed portfolio is 46,7%, well 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 46,7% will in all probability lead to negative equity index returns over the subsequent 12 months. There were six instances of higher recommended equity quotas since the survey started in 1996. In five cases negative equity returns were achieved for the subsequent year. 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 now advocates an underweighting in equities as the equity ratio points to an expected negative index return over the next 12 months. The current forecast for the MSCI World is –4,6% over the next 12 months.
Note: PARSUMO Capital does not recommend making investment decisions based solely on this indicator. The conclusion from this indicator may differ materially from our Risk Regime Investing approach (RRI), especially regarding investment horizons.
Jacques Stauffer, CEO
PARSUMO Capital AG
Förrlibuckstrasse 30, 8005 Zurich
Tel. +41 43 288 29 00