Earning no yield on gold is better than a negative yield on bonds. Therefore investors should shift the allocation of their portfolios from negative yielding bonds to gold, according to Quintet.
Quintet (formerly KBL European Private Bankers) is positive about alternatives and tends to have an overweight in gold both for the long and short term.
The bank commends the strategic role the precious metal can play in any portfolio and also claims the negative money-market interest rates have made investors consider gold as “the new cash”.
During the first ten months of 2019 more than $20bn flowed into gold ETFs. A reasonable figure, according to Quintet. ‘We are in a period of extreme quantitative easing. The number of central banks that cut interest rates in 2019 is the highest since the financial crisis. That has resulted in lower expected returns for bonds going forward. The growing share of negative-yielding bonds makes gold shine as a relatively attractive alternative. We advise, therefore, to pay more attention to gold in your portfolio allocation.’
Furthermore, the bank states that the World Gold Council expects central banks to further increase their reserves as insurance against geopolitical uncertainty and trade tensions, after they bought a record amount of $23.8bn in gold during the first 9 months of 2019. ‘This central bank activity is to support the gold price.’
Tech
Quintet also has a preference for tech stocks. ‘Tech is even more dominant now than during the dotcom bubble. That is why you cannot compare the current evolution with that period. This is a completely different cycle,’ said Quintet CIO Bill Street.
Within Europe, the bank mainly focuses on France. Street: ‘France gives tax support to tech hubs and the majority of tech startups. Interesting things are happening in France, which we also see in the Netherlands and Germany, although to a lesser degree.’
The bank is relatively optimistic about shares, resulting in a slightly overweight position in this investment category. ‘Many investors believe that valuations are too high and that substantial corrections will take place during 2020’, Quintet argues in their 2020 outlook. ‘We think that shares can keep on delivering a positive return this year. Because of increased volatility and geopolitical insecurity, returns will probably remain limited compared with 2019, but will nevertheless contribute positively to the total 2020 portfolio yield.’
Overweight to US, Japan, EM
In terms of regional allocation, the bank is positive about the US, rather cautious about Europe and positive about Japan and emerging markets.
The bank is negative about bonds, which is reflected in an underweight position. The bank does not hold many government bonds. ‘We only have US treasuries, because interest rates still have room to go lower. We prefer corporate bonds,’ said Street.