The PARSUMO Contrarian Indicator Equity (PCE) is currently showing an equity ratio of 47,2%, which will likely lead to negative equity index returns over the next 12 months. The PCE has increased in the fourth quarter of 2016 for the first time after a steady decline since March 2015.
The quarterly published NZZ Anlagepanorama, which offers an overview of the equity ratios recommended by banks and asset managers, increased in the fourth quarter of 2016 in comparison to the previous quarter. The average recommended equity ratio for a mixed portfolio is 47,2%, 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 47,2% will in all probability lead to negative equity index returns over the subsequent 12 months. There were only two instances of higher recommended equity quotas since the survey started in 1996. In both 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 –6,6%.
Jacques Stauffer, CEO
Hans Peter Stücheli, Senior Portfolio Manager
PARSUMO Capital AG
Förrlibuckstrasse 30, 8005 Zurich
Tel. +41 43 288 29 00