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Short-term bonds - more (value) than liquidity substitute

The negative interest rate environment will probably accompany us for around a decade in total. Current market expectations show that positive Euro money market interest rates are not to be expected before end of 2024. Even the current discussion as to whether the rise in the inflation rate is only temporary or whether a sustained higher price level increase will materialise has not changed the interest rate outlook so far. Following the change in strategy by the European Central Bank (ECB), it will in future tolerate a temporary overshooting of inflation …

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Beware of government bonds: losses ahead in 2021 and 2022

It didn't take long for investors to once again succumb to "FOMO" – the fear of missing out. Last week Thursday, the S&P 500 had its best day since March, with 479 of 500 stocks up. Issues such as high energy costs and tapering concerns are not yet off the table, but investment pressure prevails. Beyond that there are also good reasons to remain (cautiously) optimistic. The Q3 reporting season continues the picture of the last few quarters: so far 83% of the companies in the S&P 500 have beaten earnings expectations - despite supply bottlenecks, rising input costs and skilled labour shortages.…

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Berenberg expands debt fund portfolio with two new multi-investor funds

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Chance of a limited year-end rally

Global equity markets confirmed the typically poor autumn seasonality in September. However, we believe that there is the potential for a limited year-end rally and a renewed strength in cyclical stocks as 2022 should again provide positive surprises in economic terms, with the possible end of supply chain problems. The reflation trade is, therefore, not over yet.

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The S&P 500 fell finally by more than 5%

Investor sentiment has deteriorated further. Only 28% of US private investors in the weekly AAII survey expect the US stock market to rise in the next six months. China, high energy prices and tapering concerns weigh. The S&P 500 has seen its first correction beyond 5% in 227 trading days. We see this as a healthy countermovement after the strong rally over the last few months, but still believe a correction in excess of 10% is unlikely. There is still a lot of money parked on the sidelines, and equities remain the only alternative. The positioning of hedge funds and the options markets also…

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Liquid alternatives are a useful addition in the low interest rate environment

Bond yields have been falling for decades. As a result, c20% of bonds outstanding today are negative yielding, which poses two major challenges for investors. First, negative-yielding bonds result in a guaranteed loss for "buy-and-hold" investors, which – consequently – does not compensate for the risk of rising yields, at the very least, which could result in significant short-term losses. Second, the traditional hedging effect of bonds in equity market corrections is limited. The synchronisation (correlation) between equities and bonds has increased and the limited…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management October

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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Volatility tends to rise in the run-up to Fed meetings

The last two weeks have been marked by increased volatility in the stock market, as expected and in line with the recent higher volatility going into the big option expiry week. Options are often rolled these days, leading market makers to unwind or adjust their hedges in turn. However, volatility is likely to remain elevated at least until the Fed meeting this Wednesday, for which some market participants are already expecting a concrete announcement of the schedule for the curbing of bond purchase programs. However, the recent somewhat disappointing US labour market report as well as mixed…

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Horizon Q4 2021

The powerful recovery continues despite temporary setbacks. The prevailing scepticism about growth in the third quarter seems exaggerated.

 

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From all-time high to all-time high

Many equity regions continued to edge upwards in August thanks to positive earnings revisions, ongoing inflows and share buyback programmes. The S&P 500 marked its 54th all-time high this year – 12 of them in August.

 

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Berenberg Green Energy Junior Debt Fund is financing a 172 MWp solar park portfolio for GoldenPeaks Capital in Poland



Despite S&P all-time highs, the VIX stubbornly holds above the 15 mark

Many equity regions have continued to edge upwards recently, thanks to positive earnings revisions, ongoing inflows and share buyback programmes. The S&P 500 marked its 54th all-time high this year. Laggards such as US small caps and Japanese equities outperformed, supported by short covering and renewed economic optimism. Bond yields recently moved sideways, despite continued high inflation figures. The market is waiting for new indications from central banks regarding the curbing of bond purchase programmes. These are likely to be given at the central bank meetings scheduled for September.…

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Stronger synchronisation of equities and government bonds is also likely to shape the coming years

For a long period, government bonds with a long duration offered the almost perfect hedge against price losses in risk assets. They generated positive returns and, as safe havens, regularly compensated for part of the losses during stock market corrections. This correlation property between government bonds and equities was crucial to the success of static multi-asset approaches. Today, investors struggle not only with the low yield but often with negative expected returns from government

bonds. Also, the relationship between government bond and equity performance, which was predominantly…

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The Berenberg Capital Markets Outlook │Wealth and Asset Management September

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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Berenberg Green Energy Junior Debt Fund and Elgin Energy enter agreement to finance late-stage development of Elgin’s 1.36 GWp solar portfolio


European equities historically favourably valued relative to US equities

Things got a bit bumpier in global markets over the last few days. Growth concerns and economic disappointments due to the rapid spread of the delta variant, more hawkish tones from the US central bank (tapering discussion) and regulatory tightening in China weighed on investor sentiment. In addition, the monthly option expiration weighed on investor sentiment last week. However, historically high equity fund inflows, increasing share buybacks, corporate takeovers and a strong Q2 reporting season continue to support and investors seem willing to continue buying setbacks. The S&P 500 has not…

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Berenberg Green Energy Junior Debt Funds to finance further wind farm for Energiequelle in Finland


Under the surface, equities are also pricing in less economic optimism

While there is little to see at the index level and the S&P 500 is even at an all-time high, there is plenty of movement below the surface. Cyclical sectors have tended to be among the underperformers in the last 2-3 months, despite positive earnings revisions, as the rise in COVID-19 cases has dented investor sentiment. Technology stocks, on the other hand, rallied strongly. Bond yields on safe government bonds continued to fall. In addition to future central bank policy, the decisive factor for the further development of stock markets is the extent to which the spread of the Delta variant…

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Earning development supports the markets

The strength in the equity markets continues. July was the sixth month in a row in which the S&P 500 and the STOXX Europe 600 rose. In addition to expansionary monetary and fiscal policies, investors have recently been persuaded by better-than-expected corporate earnings on average.

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Berenberg ESG Survey: Exploring investor sentiment 2021


The Berenberg Capital Markets Outlook │Wealth and Asset Management August

Compact outlook on capital markets, economics, stocks, bonds, commodities and currencies

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The high point of economic indicators is not high point of shares

The peak of economic growth rates is behind us and growth worries are back. At least, that's how it seems when you look at recent market developments. Despite massively rising consumer prices - especially in the US - defensive and growth stocks have recently been able to perform significantly better than value stocks. Yields on safe government bonds have fallen significantly - temporarily to 1.25% for 10-year US government bonds. The broad equity market, on the other hand, rose. The good news is that even if the peak of some economic indicators is behind us, equities should continue to perform…

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Limited Upside Potential

As the equity markets have already priced in a lot of positive expectations, we think that there will only be limited upside potential until the end of the year. Consequently, we are only slightly overweight equities and have a balanced position within the asset class.

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Our investment philosophy and its implementation within our multi-asset strategies

Berenberg has fundamentally renewed its multi-asset investment philosophy in recent years and now offers modern, promising multi-asset approaches with its multi-asset funds and asset management strategies that explicitly take into account the changed market environment.

 

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