Quintet Private Bank is tilting its global portfolios toward Japanese equities, betting that a combination of low valuations, currency upside, and local reform momentum will boost diversification in the second half of 2025.
The Luxembourg-based wealth manager says the move reflects its broader aim of global diversification.
“The main pillar of our strategy is global diversification. It’s always relevant. It’s more relevant than ever today,” chief investment officer Daniele Antonucci told Investment Officer, explaining the firm’s midyear outlook. “Global diversification means, at this juncture, diversifying away from the U.S. dollar and U.S. assets. And that’s where Japan and other markets come in.”
Valuation ‘compelling’
Among developed markets, Japan stands out. “Japan is the only one currently across DMs where valuations are compelling. Valuations are below the median level of the past five years,” Antonucci said. “That’s one of the pillars of our tactical strategy.”
He also highlighted Japan’s low correlation with global equities. “Japan has quite a few idiosyncratic, country-specific drivers. We like that. It adds diversification.”
Structural reforms are beginning to pay off, he added. “Now we are seeing buybacks, for example, that are at the highest level in several years. And that’s supporting the equity market as well.”
The yen is another factor. “We are euro investors, and the yen is actually very weak—undervalued versus the dollar,” Antonucci said. “Because the Bank of Japan is the only major central bank raising interest rates, we expect the yen to appreciate from a very low level.”
“We think that it’s not a problem on the equity side, but it’s good from the currency side when you convert,” he added.
No Japanese bonds
Quintet’s Japan allocation is strictly focused on equities. “We have overweight Japanese equities, not Japanese government bonds. We have no position in Japanese government bonds whatsoever,” Antonucci said.
Low yields and currency hedging costs make JGBs unattractive. “The absolute yield of European government bonds is higher. That of U.S. Treasuries is higher as well. And then you need the currency effect… when we look at fixed income, we strip out any currency effect.”
Portfolio weighting
Japan represents a relatively small share of global equity markets, usually around 5 percent. Antonucci explained that in Quintet’s portfolios, they have increased that exposure by roughly a third to half above that benchmark level. “While it’s still smaller than our allocations to major markets like the U.S., it reflects a clear and deliberate overweight position,” he said.
The MSCI World Index, widely used as a global portfolio benchmark, still includes around 70 percent U.S. equities and approximately 10 percent European ones.
Skepticism remains
Some institutional investors remain cautious about overweighting Japan. Differing views emerged last week at the Investment Officer Portfolio Day conference in Brussels.
“Japan is hard to read. I’d say let the Japanese figure it out themselves. It’s difficult enough even for them,” said Wim Vermeir, chief investment officer at AG Insurance.
Luc Vanbriel, general manager at KBC Group, offered a more supportive view. “There are two ways to build an equity portfolio. One is based on market capitalization, and that leads you to a substantial allocation to Japan, and for good reasons, I believe. Another approach is to minimize overall volatility, and in that case too, many Japanese stocks contribute. Perhaps they offer somewhat lower upside, but diversification is crucial. And that includes Japan.”
Antonucci also sees fundamental reasons for investing in Japan. “Japan, effectively, is becoming more normal. Now you have positive inflation rather than two decades of deflation. Now you have a reasonable, if still low, but positive economic growth. Corporate earnings revisions actually are positive and now stripping the U.S.”
U.S. underweight remains
Despite trimming exposure, the U.S. remains part of Quintet’s portfolio strategy. “We are invested in U.S. equities. It’s a compelling asset class where we want to stay invested.”
Still, Antonucci warned that currency effects can erode returns. “The S&P 500 is up now, what, 2.7 percent year-to-date in dollars, but it’s down nearly 7 percent translated into euros.”
“Fixed income can be risky as well,” he added. “When you think about the risk stance, think about Treasuries. That’s supposed to be a shock absorber… but actually it hasn’t been.”
Volatility declines
Reflecting on U.S. trade tensions and political uncertainty, Antonucci noted that volatility has eased. “We have seen one of the biggest crunches in volatility in years. The U.S. equity volatility index is actually now approaching the long-term average again. So remarkable.”
Quintet nevertheless has introduced protective measures. “We have bought an instrument, a derivative instrument that appreciates when U.S. equity is full. The idea is that that would act as a risk mitigator,” Antonucci explained.