When measured in euros, this year September doesn’t appear to have lived up to its reputation as a difficult month on the markets. Apart from Europe, all the regions earned positive returns, albeit small ones. Yet those positive returns were the result of positive currency effects: the US dollar and Japanese yen both appreciated versus the euro. In local currency, equity returns were negative in all regions, which matches the picture of equities often having a tough time of it in September. Equities had to contend with rising bond yields and volatile oil prices. Bonds were of course also adversely affected by the higher yields, with government bonds falling slightly more in price than credits due to their higher sensitivity to interest rates. Real estate, also sensitive to interest rates, was the worst affected asset class.

We’ve retained our equity overweight. We believe economic growth will be high enough to have a positive impact on equities, even if central banks raise their policy interest rates slightly. The robust earnings growth is especially positive for equities.

Within bonds, we’ve closed our underweight in investment grade credits listed in euros as spreads versus government bonds have widened slightly. We hold an underweight in Eurozone government bonds. While we don’t expect bond yields to climb much higher, we prefer equities.

Highlights this month:

• Geopolitical risk premium in oil price is justified
• Little upward potential for bond yields
• Underweight switched from credits to government bond