Investments

Geopolitical developments harbour growing uncertainties and the behaviour of capital market players can to some extent scarcely be explained by fundamentals. With this in mind, we shall continue to invest substantial parts of our investment portfolio conservatively. Nevertheless, irrespective of the sovereign debt issue, the brighter economic outlook will also be reflected in appropriate risk-taking. Our emphasis on broad diversification will remain in place. By maintaining the most neutral possible modified duration we shall ensure that the interest rate risk is tightly managed.

The enlargement of the asset portfolio should have a positive effect on investment income. Despite the persistently low level of interest rates, we expect to maintain a stable average return on our investments. The interest rate increases observed in the course of the year under review in our main currency areas could provide a valuable boost in this respect. In view of the low returns on more secure investments, we shall continue to invest in products offering attractive credit spreads and selectively expand our holdings in the areas of alternative investments, real estate and emerging markets. We intend to significantly slow or even wind up the moves made over the past two years to expand the portfolio of lower-rated fixed-income securities while at the same time increasing the proportion of government bonds in order to safeguard the return while maintaining the overall level of risk virtually unchanged.

If we see corrections to the current valuation levels of listed equities we are ready to enter the market on a moderate scale.

In our assessment, the Brexit issue is an indirect source of uncertainty affecting capital markets, but not a direct factor influencing our asset management activities because we assume that markets have already priced in the uncertainty surrounding the withdrawal process.