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Outlook 2013 CENTRAL BANKS’ TRACTOR PULLING Léon Cornelissen and Ronald Doeswijk
Outlook 2013
CENTRAL BANKS’ TRACTOR PULLING
Léon Cornelissen and Ronald Doeswijk
2 | Outlook 2013
Summary 3Macroeconomic view 3
Financial markets outlook 3
Summary on asset classes with expected return intervals 4
Macroeconomic view 52013: monetary loosening, a sluggish world economy, moderate inflation 5
US economy: struggling on, fiscal cliff largest downside risk 5
Eurozone in recession 6
Japan: more pressure on the BoJ 7
China remains growth-oriented 7
India: on a lower growth path 8
Brazil 8
Russia 8
Geopolitical risk: Iran 8
Position in the economic cycle, macroeconomic scenarios & Robeco’s view versus consensus 9
Special: The eurozone debt problem: no endgame in sight 10
Financial markets outlook 12Equities 12
Real estate 15
Credits and high yield 17
Emerging debt 18
Government bonds 21
Commodities 22
Summary on asset classes with expected return intervals 24
Regional and sector allocation equities 25
Important information 28
Contents
Editing: Mark Fisher
Design: Studio Robeco
Outlook 2013 | 3
Summary
Macroeconomic viewIn 2013, two major elements of political uncertainty will be removed, at
least in principle: a US president and a new generation of Chinese leaders
will be in place for four years and ten years respectively. The US economy
will probably struggle on, with politicians slowly acting to restore
budgetary sustainability in the medium term. China is likely to see more
stimulus to accelerate growth. In the meantime, the major central banks
in the developed world will use unconventional monetary stimulus more
heavily.
The eurozone will continue to struggle on in 2013. Progress towards
a fully integrated fiscal, political and banking union will probably be
disappointingly slow. Doubts about the long-term feasibility of
the euro project will remain alive, possibly exacerbated by a ‘Grexit’.
For the eurozone debt crisis in 2013, there is no endgame in sight.
The US central bank has made it very clear that monetary policy will
remain very loose. Every so often headlines appear saying that ‘The Fed
will destroy the US economy’. The Fed will not destroy the US economy.
It can’t destroy the US economy—but it could destroy fiduciary money.
Given the sluggish growth environment, inflation will—in general—be
tame. Headline inflation could rise markedly, though temporarily, as
a consequence of a severe destabilization of the Middle East or of climate
change again leading to a series of crop failures.
Financial markets outlookAs with the muddling-through economy, we cannot get really
enthusiastic about the outlook for equities in 2013. It is positive that
central banks are pulling out all the stops to stimulate the economy.
This will probably keep long-term interest rates, and companies’ funding
costs, low. Further support might come from increasing share buy-
backs. But with valuation neutral and earnings growth marginal, we
expect it to be hard for the monetary stimulus to push up equity prices
significantly.
The outlook for real estate strongly resembles the one for equities. Bond
yields remain low and we forecast lower credit spreads. As a result,
funding costs might fall further. Moreover, vacancy rates for prime
commercial real estate are gradually declining as growth in demand
outstrips new supply. Real estate is also less vulnerable to downward
earnings revisions. Against these positives, however, is increasing
valuation.
Corporate credits are benefitting from the ongoing conservative stance
of companies. They are reluctant to invest, have high interest-coverage
ratios and lots of cash on their balance sheets. For financial-sector credits,
other factors are also playing an important role. First, there is negative
net issuance in Europe due to the ECB’s long-term refinancing operations
(LTROs) and financing by deposits and covered bonds. Second, regulators
will demand higher capital requirements. This will reduce default risk and
create safer banks. For investors in search of yield, credits are thus a very
attractive option.
In the high yield bond market, companies have been working on
strengthening their balance sheets and lengthening the maturity of their
bonds. Against these positive fundamentals, the credit cycle appears to
be entering its next phase. Covenants on new bond issues are becoming
weaker and leverage has stopped falling. Valuation is neutral, leaving
limited potential for spread compression. But even without spread
compression, high yield bonds look attractive compared with government
bonds.
The prospects for emerging markets debt remain attractive. Economic
performance in these markets is relatively good, and fiscal deficits and
debt-to-GDP ratios are low. Local-currency government bond yields
average 5.8%, which is attractive compared with government bonds from
developed markets.
Yields on high-quality government bonds have dropped to new record
lows. The lower the yield, the worse the outlook. Still, we do not expect
a significant increase in long-term rates. The economic climate is weak.
Central banks have extended their balance sheets agressively. Moreover,
regulatory changes (Solvency II, central clearing) are increasing demand
for goverment bonds. We firmly maintain our view that the performance
of government bonds will lag investment-grade credits.
As 2013 is set to be another year of moderate global economic growth,
we expect most commodity prices to drift sideways. For oil, little change
is expected on supply and demand in the near term. For industrial metals,
economic growth in China is crucial. As we are not forecasting a strong
economic rebound, we think it is unlikely that industrial metals prices will
rise. In our baseline scenario, we expect generally flat returns. Given the
ongoing uncertainty about the sustainability of government finances, we
can very well imagine gold drifting higher.
4 | Outlook 2013
Summary on asset classes with expected return intervalsThe table summarizes our expectations—expressed in ranges of expected
returns—for all asset classes. These ranges are based on our baseline
scenario of moderate economic growth, low inflation and low interest
rates that will remain low. If growth surprises on the upside (10% chance)
or a recession starts (25% chance), we expect actual returns to fall outside
these intervals. Even if our baseline scenario materializes, it is possible
that actual returns will be outside these ranges. To illustrate, if one had
to provide a naïve 95% confidence interval on annual equity returns,
one would report a range of expected returns of roughly -30% to 50%.
In short, we provide these ranges simply to indicate what returns seem
reasonable to us for 2013.
Return expectations by asset class*
Lower limit Upper limit
Global equities -5% 15%
Global real estate -5% 15%
High yield -2% 8%
Emerging Market Debt -2% 8%
Investment grade credits 1% 6%
High-quality government bonds -2% 4%
Commodities -10% 10%
* The fixed income classes government bonds, investment grade credits and high yield usually
are 100% hedged investments. Otherwise, currency fluctuations would significantly impact
total returns. Therefore, our expectations are on a hedged to euros base. For global equities,
real estate and emerging market debt we provide local return estimates. For these asset
classes, investors frequently do not implement a 100% hedge. Finally, our commodities return
range is based on US dollars as commodity prices are quoted in dollars.
Macroeconomic view
Outlook 2011 | 5
2013: monetary loosening, a sluggish world economy, moderate inflationThe world economy is in a difficult phase. The eurozone economy is
weakening. Austerity is biting in the periphery while the core, especially
France, is also slowing. Japan’s post-Fukushima boost is over. Territorial
disputes with China are threatening growth further. China and India
have decelerated markedly. The US is struggling along a sub-trend
growth path. In 2013, two major elements of political uncertainty will be
removed, at least in principle: a US president and a new generation of
Chinese leaders will be in place for four years and ten years respectively.
The US economy will probably struggle on, with politicians slowly acting
to restore budgetary sustainability in the medium term. China is likely
to see more stimulus to accelerate growth. In the meantime, the major
central banks in the developed world engage in “tractor pulling”. They
will use unconventional monetary stimulus more heavily. The European
debt crisis will undoubtedly flare up from time to time, but with the ECB
increasingly acting like an ‘investor of last resort’ for the eurozone, the
worst is probably in the past. At the moment, skepticism is high about
the beneficial effects of the current monetary policy. But in order to keep
the euro intact, to prevent a slide into deflation and to continue to reflate
over-indebted economies, we believe that radical policies are unavoidable.
Given the sluggish growth environment, inflation will—in general—be
tame. Headline inflation could rise markedly, though temporarily, as a
consequence of a severe destabilization of the Middle East or of climate
change again leading to a series of crop failures.
US economy: struggling on, fiscal cliff largest downside riskThe US economy continues to soldier on at an unimpressive speed.
The brightest spot is housing, where the market has definitely turned
a corner. At present, it does not look likely that the US economy will slip
into a recession. The largest risk is irresponsible politicians potentially
pushing the US economy off the so-called fiscal cliff. At the end of this
year, tax cuts and certain expenditures, including unemployment benefits,
will automatically end unless Congress decides to act. The easy way out
would be a delay of six months or a year in order to prevent a severe fiscal
tightening which would probably push the US economy into a recession:
even the Federal Reserve would be powerless against it. As politicians
are sharply divided on the fiscal policy mix and important elections in
November are looming, they see little incentive to reach a deal before
the country votes. Appearing to be ready to go all the way is a key
element in winning a game of chicken. Tensions will rise until the results
of the elections are clear. Afterwards, there should be plenty of scope for
compromise. History teaches that this will be harder (but not impossible)
when Congress is divided. Polls are pointing towards such an outcome,
with a democratic Senate, a Republican House and a Democratic
president. Under these circumstances, a compromise is the most likely
scenario.
Exceptionally weak US job market recovery
0
0,5
1
1,5
2
2,5
3
3,5
4
4,5
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
07 09 11
Total Central Bank Assets (BLN USD) Average Central Bank Interest Rate (%)
Central bank rates and assets
6 | Outlook 2013
The current US fiscal policy is not sustainable in the long run. Avoiding
the fiscal cliff will not mean that fiscal consolidation can be put on hold
for ever. It is therefore likely that in the course of 2013 the president and
Congress will agree on a medium-term plan for fiscal consolidation.
But the US system of checks and balances makes it unlikely that fiscal
consolidation will be aggressive. Some progress should occur, however,
and the government will be a moderate drag on economic growth.
The US central bank has made it very clear that monetary policy will
remain very loose. After Jackson Hole, a third tranche of quantitative
easing (QE3) was widely expected. Yet Fed chief Ben Bernanke managed
to surprise markets. Rather than an amount, he announced a ‘rule’.
Every month the Fed will buy USD 40 bln of assets (initially mortgage
backed securities, but at a later stage other assets are also possible).
Operation Twist will be extended until the end of 2013. Furthermore, the
Fed will keep short-term interest rates low at least until well into 2015.
Bernanke even expressed his desire to get ‘behind the curve’, normally
a cardinal sin for a central bank. Even when the economy strengthens,
Bernanke will be in no hurry to tighten. Only one member of the FOMC
dissented, suggesting that there is a broad consensus within the policy
setting committee for reflationary policy. Of course, the declared policy
rule is not as automatic as it might first appear. The FOMC can change the
rules whenever it sees fit, albeit at the cost of damaging the credibility of
future policy-rule announcements. As Congress has the power to change
the Fed’s mandate, the central bank has to take care that its actions are
broadly supported. For the time being, though, the Fed will proceed. It
has showed its hand, increasing pressure on politicians to make sure the
fiscal cliff is avoided. Not much impact on longer-term interest rates and
inflation should be expected from the Fed’s actions. The slack in the US
economy is too large to make that an issue in the coming years. But the
effects on the stock market and the US dollar should spread a benign
influence over the economy. Every so often headlines appear saying that
‘The Fed will destroy the US economy’. The Fed will not destroy the US
economy. It can’t destroy the US economy—but it could destroy fiduciary
money.
We expect the US economy to grow in 2013 more or less in line with 2012.
Inflation will probably moderate a bit, although climate change and,
as a consequence, so-called global weirding are risk factors that do have
the potential to push it higher.
Eurozone in recessionThe eurozone is in recession. Not only is the periphery suffering, but the
core is also showing signs of weakness. With headline inflation stubbornly
high, the ECB is reluctant to ease monetary policy further. A general
policy of quantitative easing (taking the form of buying a GDP-weighted
portfolio of government debt, for instance) is still far away. The limited
room for lower interest rates will probably be used in the coming months,
but it is unlikely that deposit rates will turn negative in 2013. With the
creation of outright monetary transactions (OMT), the ECB has a powerful
weapon to reduce risk premiums on peripheral debt. But the central bank
cannot eliminate longer-term uncertainty about the feasibility of the euro.
US: Housing market developments Japan: Tankan manufacturing and non-manufacturing
-20
-15
-10
-5
0
5
10
15
0
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
02 04 06 08 10
Existing home sales ann *1000 Change average house price (r.h. scale)
-70
-60
-50
-40
-30
-20
-10
0
10
20
30
40
97 98 99 99 00 01 01 02 03 03 04 05 05 06 07 07 08 09 09 10 11 11 12
Tankan large enterprises manuf. Tankan non-manuf.
Outlook 2013 | 7
Progress towards fully fledged banking, political and fiscal union has been
disappointingly slow and political tensions within eurozone countries
are on the rise. Investment within the euro area is being hindered by the
ongoing uncertainty. The euro will probably weaken against the US dollar
in the course of 2013, offering some—but not sufficient—relief. 2013 will
be a difficult year, with the euro area stagnating. There is no endgame in
sight (see special on page 10).
Ongoing uncertainty in the eurozone will have a negative impact on
the UK economy as well. GDP growth is set to be in line with the eurozone.
Inflation will come down, now that earlier tax increases have worked
through. The Bank of England has done much more than the ECB in terms
of quantitative easing.
Japan: more pressure on the BoJThe Japanese economy is weakening again, now that the stimulus from
the Fukushima-crisis is past. In response to the Fed, the Bank of Japan
(BoJ) has recently increased its quantitative-easing program. We expect
more monetary stimulus to come. Elections in Japan are likely to take
place at the end of 2012. The prime minister, Yoshihiko Noda, is highly
unpopular after pushing through a future, two-stage VAT increase. One
unfortunate consequence of his unpopularity is that uncertainty about
the hike has increased again. To avoid its own fiscal cliff, the Japanese
government has to agree to elections, which will probably result in a
devastating loss for Noda. Japan would thus lose its sixth prime minister
in six years. We expect the next prime minister, who will probably be
Shinzo Abe of the LDP, to put more pressure on the BoJ. He could do so by
changing its mandate and by forcing a more ambitious inflation target
on the bank of—say—2%. He could also give the BoJ more room for
maneuver in weakening the yen, for instance by allowing it to buy foreign
bonds. That said, 2013 will probably be another lost year for the Japanese
economy, with weak growth and mild inflation. But the medium-term
outlook is better, given that a more growth-oriented leader looks set to
take over. The territorial conflict with China is increasing the downside
risks to the outlook for economic growth. But we expect tensions to
decline after China’s leadership change.
China remains growth-orientedThe Chinese economy is slowing, as clearly illustrated by the development
of the three indicators preferred by Li Keqiang (see chart), who is likely to
become the country’s new prime minister. In part, this can be attributed
to inventory adjustments in the Chinese economy reflecting a somewhat
lower structural growth path. China’s leaders are taking a cautious
approach, gradually easing policy over a broad front. In autumn 2012, a
new politburo standing committee will be appointed as part of China’s
ten-year political cycle. There were few surprises among the appointments
at the regional level and the same is expected for the new politburo.
It remains to be seen if the new politburo will take a more aggressive
approach as regards economic stimulus. In any case, the newly appointed
regional leaders have announced a host of investment projects. In the
interest of social stability, it is unlikely that the new leadership will accept
a further weakening of the Chinese economy. As there is a good deal
GDP growth rates BRIC (%YOY) Economic indicators preferred by Li Keqiang
-15
-10
-5
0
5
10
15
2007 2008 2009 2010 2011
China India Brazil Russia
8 | Outlook 2013
of room for maneuver, we expect a somewhat higher growth rate for
the Chinese economy in 2013 compared with 2012, at around 7%. The
intentions of the new leadership will only become clear gradually in the
course of 2013, as they will have to consolidate their power base and
agree on a common agenda.
India: on a lower growth pathThe growth rate of the Indian economy has declined to around 5%.
Weak external demand hasn’t helped; nor has the high oil price.
Political paralysis has prevented meaningful economic reform and this
is discouraging foreign investment. Inflation remains stubbornly around
7.5% and the economy is facing rising budget and current-account deficits.
Belatedly—when threatened by a downgrade of its debt to junk status—
the Indian government has taken fresh initiatives on reform: heavily
subsidized energy prices will be raised, the retail and aviation sectors will
be opened up to foreign competition and a new privatization program
will be started. But the Indian economy needs much more reform and it
remains to be seen if the country’s politicians have the stomach for bolder
steps, given the elections in spring 2014. All in all, we expect a growth rate
in 2013 around current levels, hardly any improvement in inflation and
therefore little monetary stimulus.
Brazil: is doing rather wellThe Brazilian economy is doing rather well, given the difficult global
environment. Earlier fiscal and monetary easing—the latter was
aggressive—are making themselves felt. After a weak 2012, the Brazilian
economy is likely to strengthen in the course of 2013, on the back of an
uptick in the Chinese economy. Inflation should stabilize around 5%,
leaving little room for additional interest-rate cuts.
Russia: central bank confidentThe Russian economy is growing at a comfortable rate of around 3%,
aided by a persistently high oil price. With an unexpected rate hike,
the confident Russian central bank appears to have started a tightening
cycle to keep inflation in check. Growth will not be allowed to dip much
below the current level for political reasons.
Geopolitical risk: IranOne risk facing the world economy in 2013 is an escalation of tensions
in the Middle East, especially in Iran. Western sanctions do not appear
to be preventing Iran from pursuing its uranium-enrichment program,
potentially enabling it to produce nuclear weapons. It remains to be
seen whether the West limits itself to containment and deterrence or
Position in the economic cycle
Slow down
Accelerating growth Economic recovery
End of recession Start recession
Baseline scenario 2013
Japan
US
Europe
China
Outlook 2013 | 9
it succumbs to the temptation of a pre-emptive strike now that Iran seems to be within reach of
the nuclear threshold. Only the US has the military capability to set back the Iranian program
meaningfully, but as it is unlikely to be willing to send in ground troops, Iran cannot be kept from
producing nuclear devices forever. A war in the Middle East would send oil prices sky high, hurting
growth and pushing up headline inflation.
Position in the economic cycle, macroeconomic scenarios & Robeco’s view versus consensusSince 2010, we have characterized the current environment as a cyclical recovery that is being
tempered by structural problems. Deleveraging, austerity measures, the ongoing euro crisis and
a lack of political decisiveness continue to be major themes. The corporate sector is relatively
strong.
Macroeconomic scenarios
Source: Robeco
Consensus estimates of economic growth and Robeco’s expectations
* indicates whether we expect a higher (+), matching (=) or lower (-) growth rate than
the current consensus estimate for 2013
Source: Consensus Economics, Robeco
Consensus estimates of inflation and Robeco’s expectations
* indicates whether we expect a higher (+), matching (=) or lower (-) inflation rate than
the current consensus estimate for 2013
Source: Consensus Economics, Robeco
GDP growth by region (%) 2011 2012 2013 Robeco*
US 1.8 2.2 2.1 =
Eurozone 1.5 -0.5 0.2 -
UK 0.8 -0.3 1.3 -
Japan -0.7 2.4 1.3 =
China 9.2 7.7 8.1 =
India 6.5 5.9 6.9 =
Brazil 2.7 1.6 4.0 +
Russia 4.3 3.8 3.7 +
World 2.5 2.1 2.4 =
CPI by region (%) 2011 2012 2013 Robeco*
US 3.1 2.0 2.0 =
Eurozone 2.7 2.4 1.8 =
UK 5.3 3.1 2.6 -
Japan -0.3 0.1 0.0 -
China 5.4 2.8 3.4 =
India 8.3 8.9 7.4 +
Brazil 6.5 5.2 5.3 +
Russia 6.1 6.6 5.9 =
World 3.3 2.5 2.3 =
Structural problems Cyclical recovery
Recession (25%) Sub trend growth (65%) Traditional recovery (10%)
ECB president Mario Draghi’s 26 July promise
“to do whatever it takes” to preserve the euro
and the subsequent introduction of Outright
Monetary Transactions (OMT) resulted in
a decline in risk premiums on peripheral
government debt. This was especially the case—
though not exclusively—at the shorter end of
the yield curve. A collapse of the eurozone had
been effectively prevented. Of course, longer-
term concerns about the creditworthiness of
peripheral sovereigns remain.
In Spain, a decline of interest rates is a
welcome development, but it remains to be
seen if yields are sufficiently low to put the
Spanish economy back on a sustainable path.
The economy is in recession and business
sentiment is weak. Secessionist political
tensions are on the rise. Supply-side reform
in Spain looks promising, but it remains to be
seen if political support for these measures will
last. Domestic capital flight continues on an
unprecedented scale. We expect the Spanish
Special
10 | Outlook 2013
The eurozone debt problem: no endgame in sight
0
2
4
6
8
10
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2010 2011 2012 Portugal Spain Italy Ireland Belgium
government to make a formal request for
European assistance via the ESM, which will
open the door to potentially massive support by
the ECB, bringing down risk premiums further.
But it is doubtful whether confidence in the
Spanish sovereign will be restored in 2013.
A sovereign haircut at a later stage cannot be
ruled out, though it is unlikely to occur in 2013.
Italy, richer, with sounder banks and a relatively
healthy government deficit, seems much
closer to a sustainable path. But the recession
is becoming severe. The main risk is political,
with technocrat prime minister Mario Monti
hinting at retirement. Like Spain, Italy is likely to
tap the ESM in the course of 2013, unleashing
the unlimited firepower of the ECB. Just like in
Spain, continuing popular support for austerity
and supply-side reform is far from assured. On
the positive side, a second Monti government
after the April 2013 elections cannot be ruled
out. That would do much to restore confidence.
As in Spain, a sovereign haircut is highly unlikely
in 2013. But one cannot be ruled out at a later
stage.
In the case of Greece, the eurozone’s
policymakers once again seem to be playing
for time. It is unlikely that the troika will force
Greece to exit the euro, especially as German
chancellor Angela Merkel appears to consider
the economic and political risks to be too
high. A new haircut with Greece remaining
in the euro area is a serious possibility. That
Ten-year yield spreads over Germany
Source: Thomson Reuters Datastream
Outlook 2012 | 11
said, Greek politicians’ ability to drum up
enough domestic support to keep Greece in is
another matter. In the meantime, the EU has
created enough crisis instruments to handle
an eventual ‘Grexit’. Nevertheless, the long-
term consequences of a country leaving the
euro area should not be underestimated. It
would make the eurozone more vulnerable,
as an exit would prove that it is just another
currency arrangement, which can break under
stress. We would expect a lot of attention to be
paid to the weakest country remaining inside
the eurozone. For further developments, the
experience of Greece outside the eurozone
would be of utmost importance: would it
succumb to hyperinflation (a serious possibility,
given its relatively weak institutions) or would
it heal relatively quickly, as Iceland did? These
developments remain hard to forecast.
The weakened competitiveness of France
relative to Germany is a worrying development
in the core of the eurozone. Unless supply-side
reform is implemented, France could become
a concern for the eurozone in the longer
term. Until now, the country’s new president,
François Holland, hasn’t shown much stomach
for addressing France’s long-term economic
problems. On a more positive note, he does
at least appear to be aware of their existence.
So far, French sovereign bonds have not been
buffeted too much; markets are judging that
France will be supported by Germany no
matter what. This could change if the French
government fails to address some of the
structural weaknesses in the economy in
the coming months.
Important elections will be held in Germany
in the autumn (on a Sunday between 28
August and 27 October). This will be a crucial
test for the popular support for the German
government’s euro policy. Merkel’s cautious
and piecemeal approach is very popular among
voters—she is more popular than her party,
so a third term is a strong possibility. German
politicians expect a CDU coalition with the
social democratic SPD (a so-called ‘Grosse
Koalition’), possibly without the CSU, the CDU’s
more eurosceptic Bavarian sister party. We thus
expect German euro policy to remain on its
current course.
All in all, we expect the eurozone to continue
to struggle on in 2013. Progress towards a
fully integrated fiscal, political and banking
union will probably be disappointedly slow. The
current proposals for a banking union do not
inspire much confidence. Merkel has called for
an intergovernmental conference in early 2013
to discuss a treaty change designed to secure
better governance in the euro area, especially in
the area of government finances. This proposal
has received lackluster support in a number
of other euro countries. Not much should be
expected. Any eventual treaty changes will take
a long time to ratify. At least one referendum
is probably inevitable. The president of
Germany’s constitutional court is not alone in
stressing the need for a referendum; after all,
Germany would be handing over large chunks
of sovereignty to Brussels. Whether such a
referendum will be necessary is highly uncertain
at this stage. But a German ‘no’ would cause
the worst political crisis in Europe since the end
of the Second World War.
Doubts about the long-term feasibility of
the euro project will remain alive, possibly
exacerbated by a ‘Grexit’. The US central bank
is reckoning on three to five years of ongoing
uncertainty. For the eurozone debt crisis in
2013, there is no endgame in sight.
12 | Outlook 2013
Equities
The macro environment means that the outlook for equities in 2013 is
lackluster. Clearly, quantitative easing around the globe has driven down
interest rates. We expect rates to stay low in 2013. Contrary to credits,
high yield bonds and emerging debt, this is not a clear-cut positive for
equities. Low interest rates signal an environment of low inflation and
low economic growth. Equities are a two-tail story of discount rates and
earnings. As for the latter, it is difficult to imagine significant growth.
After all, earnings have been surprisingly strong over the last couple of
years. As illustrated in the graph below, real earnings for the MSCI AC
World index are 10% above their 30-year trend line. In other words, the
trend level of earnings is lower than reported earnings. Usually, this
situation occurs after a period of high economic growth. Examples include
the end of the 80s (before the recession of the early 90s) and 2007 (before
the financial crisis hit the market). Now, we are experiencing above-trend
earnings in a muddling-through macroeconomic environment.
Earnings have benefitted from companies’ conservative stance on
investment. In OECD countries, investment was cut by an unprecedented
20% in 2008 (the OECD series starts in 1961). Today, investments are
still 10% below the investment level of 2008 and are at the same level
as 2005. Personal-consumption expenditures are setting new highs,
although growth is low. Government consumption accelerated in 2009
but has subsequently been flat. In short, companies are hoarding
cash instead of investing. As a result, depreciation is declining, which
is supporting earnings. Another potential positive from companies’
reluctance to invest is that they may increase share buy-backs. Hoarding
cash on the balance sheet is costly, and share buy-backs are becoming
an increasingly attractive opportunity. Further support for earnings is
coming from labor, which has to deal with job uncertainty and therefore
has no pricing power. Finally, interest payments on debt continue to
decline due to historical lows in government bond yields and falling
spreads.
Financial markets outlook
Performance of global equities from 1970 (EUR)
Source: Thomson Reuters Datastream, Robeco
Real earnings index for global equities and the 30-year trend line (MSCI AC World; USD)
Source: Thomson Reuters Datastream, Robeco
10
100
1000
10000
1970 1975 1980 1985 1990 1995 2000 2005 2010
MSCI World (total return; EUR)
Outlook 2013 | 13
Utilizing existing capital stock to the limit drives earnings in the short
term. But it also paints a somewhat rosy picture of true earnings, as
companies need to invest for growth in the longer term. Earnings margins
are at record highs. But we believe it will be hard to grow these margins.
We thus expect earnings—at best—to see marginal growth in 2013.
Analysts are clearly too optimistic with their projections of 12% growth.
As in 2012, we expect to witness several rounds of massive earnings
downgrades by analysts.
Consumption and investment (total OECD, volume)
Source: Thomson Financial Datastream, Robeco
Net profit margins for S&P 500 companies (%)
Source: Empirical Research
75
100
125
150
175
200
225
250
1980 1985 1990 1995 2000 2005 2010 Gross fixed capital formation Government consumption Private consumption
14 | Outlook 2013
History has shown that relative valuation indicators are poor at
forecasting equity returns. In contrast, absolute valuation indicators,
such as P/E or P/CF, have been useful in forecasting returns. We therefore
focus on absolute valuation ratios. At first sight, then, equities look
attractively valued. For example, based on current earnings, the P/E is
14x; we view 15x as a normal valuation. However, earnings are 10% above
trend earnings. Using trend earnings leads to the conclusion that equities
are neutrally valued. The chart above shows the well-known cyclically
adjusted Shiller P/E. There, the cyclical adjustment is made by simply
taking a ten-year rolling average of earnings. This indicator is in line with
its long-term average.
The only issue that could appear truly negative from a valuation point
of view is that a period of de-rating has been occurring since 2000.
As the chart shows, periods are characterized by P/E expansion or P/E
contraction, which range from 12 to 24 years. If the current pattern,
which only has a few observations so far, holds in the future, further P/E
contraction will occur, as we are currently in neutral valuation territory.
As with the muddling-through economy, we cannot get really enthusiastic
about the outlook for equities in 2013. It is positive that central banks are
pulling out all the stops to stimulate the economy, as this will probably
Periods of P/E multiple expansion and contraction
Source: Robert Shiller, Robeco
Shiller P/E for the MSCI World Index
Source: Thomson Financial Datastream
keep long-term interest rates low. Further support might come from
increasing share buy-backs. But, with valuation neutral and earnings
growth marginal, we expect it to be hard for the monetary stimulus to
push up equity prices significantly.
Outlook 2013 | 15
Real estate
With the exception of Europe, real estate (as measured by the
performance of regional REITs indices) is beating equities for a fourth
year in a row. Three factors have played a role in this. First, the drop in
government yields and credit spreads has lowered funding costs. As
funding costs mainly determine their total costs, REITs have a higher
sensitivity to funding costs than equities. Second, investors had
a clear preference in 2011 and 2012 for defensive sectors over cyclical
ones. This demand has derived from the moderate to low economic
growth combined with central banks’ quantitative easing policies. After
government bonds, credits are the next in line to benefit from such an
environment. But high yield bonds, emerging markets debt, real estate
and defensive equity sectors also benefit from the search for ‘safe yield’.
Third, we think REITs have benefitted from demand that was seeking
long-term inflation protection. Although real estate would not in itself
be a good inflation hedge in a period of rising inflation and bond yields,
it is in the end a real asset. To illustrate, imagine a very extreme scenario
in which central banks decided to hand out money directly to people
because they believe a reset of the financial system is the only way to
eliminate unsustainable debt levels, particularly in government finances.
In such a situation, assets such as gold, real estate and equities would
probably benefit in nominal terms.
Several factors argue for the continued outperformance of real estate
versus equities in 2013. We expect high-quality government bond yields
to remain low due to quantitative easing, low economic growth and the
absence of inflation risk in the short term. We also forecast lower credit
spreads. That means that funding costs might fall further when loans are
refinanced. Moreover, vacancy rates for prime commercial real estate
should gradually decline as growth in demand outstrips new supply.
Real estate is less vulnerable to downward earnings revisions. For 2013,
analysts expect earnings growth of 12% for equities and 7% for real estate.
Both are probably too optimistic, given the macroeconomic environment.
But just like in the last five months, equity analysts will have to downgrade
their earnings estimates more than real estate analysts.
Set against the positive outlook for funding costs and relative earnings
there is increasing valuation. In a historical perspective, the price-to-book,
price-to-earnings and price-to-cash flow ratios are all high compared with
the same ratios for equities, while the dividend yield is low. As can be seen
in the accompanying graph, the dividend yield for real estate is just 25%
above the dividend yield of equities; in the 1998-2004 period, investors
received a dividend yield on real estate that was twice as high as the one
for equities. Of the valuation indicators, cash flow yield (which we think
is the most important) indicates the smallest overvaluation of around
Performance of REITs (GPR) relative to equities (MSCI)
Source: Thomson Reuters Datastream, Robeco
Real estate valuation indicators relative to equities
Source: Thomson Reuters Datastream, Robeco
0,0
0,5
1,0
1,5
2,0
2,5
3,0
96 98 00 02 04 06 08 10 12
Price-to-book Price-to cash flow Price-to-earnings Dividend yield
16 | Outlook 2013
Five-year rolling correlations between equities and real estate (monthly returns)
Source: Thomson Reuters Datastream, Robeco
10-15% relative to the average of 1996-2012, the period for which data is
available.
On balance, the outlook for real estate strongly resembles the one for
equities. Given the record-high correlations between real estate and
equities (the correlation over the past 60 months is currently around 0.9)
this might not come as a big surprise. We can imagine that investors are
positive on real estate versus equities. A useful corrective is to take a close
look at relative momentum, given that the valuation of real estate limits
the upward potential relative to equities.
Earnings revisions index global equities and real estate
Source: Thomson Reuters Datastream, Robeco
Outlook 2013 | 17
Credits and high yield
Credits and high yield bonds have benefitted from a yield pick-up
compared with government bonds, as well as a tightening of spreads. We
expect this to continue into 2013, although returns are likely to be lower,
given that interest rates and spreads are not as high as a year ago.
Corporate credits are benefitting from the ongoing conservative stance
of companies. They are reluctant to invest, have high interest-coverage
ratios and lots of cash on their balance sheets. As the macroeconomic
backdrop will be affected by a further deleveraging of the economy, now
that governments have to deliver, companies will continue to operate in a
‘bondholder friendly’ fashion in 2013. Moreover, demand should remain
strong, as credits are highly correlated to government bonds. For investors
in search of yield, credits are thus a very attractive option.
For financial-sector credits, other factors will also play an important role.
First, there is negative net issuance in Europe due to the ECB’s long-term
refinancing operations (LTROs) and financing by deposits and covered
bonds. Second, regulators will demand higher capital requirements.
This will reduce default risk and create safer banks. That is positive for
bondholders and negative for equity holders, as less leverage will result in
a lower return on equity. Although the probability of default is declining,
the losses in the event that a default does occur will be higher: from 2018,
Source: Bloomberg, Robeco Source: Morgan Stanley Research, Dealogic
bail-in rules will apply and there is the issue of “asset encumbrance”
(there are fewer assets available to unsecured bondholders in the event
of default because collateral has been pledged elsewhere). On balance,
stricter rules are a positive for bondholders.
We still see room for spread tightening for both corporate credits and
financial credits. Spreads are still above average, particularly in the
financial sector. To illustrate, the US credit spread of 1.6% is in the seventh
decile of spreads over the 1983-2012 period. The graph with global
spreads also shows that spreads are above average in a historical context.
So although yields are low, they should benefit from continuing financial
repression which is likely to push spreads down further. Look at it this way:
although return on capital is currently low, it is return of capital that is
ultimately important, and that is becoming surer every day.
In the high yield bond market, companies have been working on
strengthening their balance sheets and lengthening the maturity of their
bonds. This has lowered default risk. Currently, default rates are running
at 2%, though analysts expect an increase to around 3.5%. But as the
global economy muddles through, helped by central banks’ steroids, there
is room for a positive surprise. Moreover, recovery rates have increased
to 50%. Against these positive fundamentals, the credit cycle appears to
Performance indices of global high yield, credits and government bonds (hedged EUR)
Issuance in the European market for credits
18 | Outlook 2013
Global spread for investment-grade and high yield bonds
Source: Barclays, Robeco Source: JP Morgan, Robeco
be entering its next phase. Covenants on new bond issues are becoming
weaker and leverage has stopped falling. If anything, leverage is actually
tending to rise.
Valuation is neutral. Yes, spreads are a little above the historical mean,
but yields have fallen so low that bond prices are increasingly trading
above par. In the US, 70% of the market is close to price levels at which
it would logical for the issuers to call their bonds, thus leaving limited
potential for spread compression. But even without spread compression,
high yield bonds look attractive compared with government bonds.
The running global yield spread is 5.4%. After deducting default costs,
we expect investors to end up with a premium of roughly 4% over
government bonds.
On a risk-adjusted basis, we prefer investmen-grade credits to high
yield bonds. Credits are more likely to benefit from a further spread
compression. Moreover, investment-grade credits are the perfect asset
class for a long position versus a short position in government bonds
due to their high correlation.
Emerging market debt
Performance of sovereign emerging local currency debt and the average yield
Emerging markets debt has benefitted from falling yields, while currency
exposure has also added to returns. The prospects for emerging markets
debt remain attractive. Economic performance in these markets is
relatively good, and fiscal deficits and debt-to-GDP ratios are low. Local-
currency government bond yields average 5.8%, which is attractive
compared with government bonds from developed markets.
In the most important emerging debt markets, analysts generally expect
economic growth to accelerate and inflation to decline. In general,
current-account balances might worsen somewhat due to weak demand
from Europe, while budget deficits will show a slight improvement.
The following charts illustrate the changes from 2012 to 2013 on a
country-by-country basis. This might paint a picture that is somewhat too
rosy. Growth estimates are falling, reflecting the weak global economic
data over the last few months. In this respect, there is one point worth
mentioning. Leverage in emerging markets has increased. This is primarily
due to an uptick in private debt, as can be seen in the graphs. In the event
of an unexpected deterioration of economic growth, this will limit the
size of any new rounds of fiscal stimulus, as countries such as China and
Brazil have experienced the negative effects of overly aggressive support.
Lessons have been learned.
Outlook 2013 | 19
Changes in GDP growth, inflation, current account and governments’ budget balances 2012-2013 (%)
Government debt-to-GDP ratios (%)
Source: Bloomberg, Robeco Source: IMF, Robeco
20 | Outlook 2013
Overall, we forecast moderate currency gains against the euro. In the
last 12 months, investors have benefitted from currency gains in Mexico,
Poland, Turkey and Malaysia, for example. The main driver behind
this currency appreciation has been the relatively strong economic
performance compared with developed markets in general and the
eurozone in particular. The risk of food price-induced inflation in emerging
markets has decreased, now that food prices have corrected somewhat
after a strong surge in June and July. As we expect the eurozone economy
to stay weak well into 2013, with very loose monetary policy and recurring
political uncertainty, we foresee a further weakening of the euro.
Private debt-to-GDP ratios (definitions differ by country; %)
Source: IMF, Robeco
Annualized return on currencies versus euro
Source: Bloomberg, Robeco
Outlook 2013 | 21Outlook 2012 | 21
Government bonds
Despite long-term interest rates being at record lows, global government
bonds have returned more than 3% so far in 2012. Yields on high-quality
bonds have dropped to new record lows. But the lower the yield, the
worse the outlook. Still, we do not expect a significant increase in long-
term rates.
Since 2008, nominal economic growth rates have been lower than in the
preceding decades; Japan is the exception, as growth there was already
low. Currently, nominal economic growth is around 1% in the eurozone,
2% in the UK and 4% in the US. We expect real economic growth in
developed markets in 2013 of between 0% (the eurozone) and 2% (the
US), while inflation will be around 2%. Nominal growth rates will thus end
up between 2% and 4%. We expect it will take three to five years before
nominal growth rates will be 4-6% again. Since 1900, long-term interest
rates have on average traded below economic growth. In that respect,
current yields are not that low, given the weak economic climate.
In addition to the weak economic climate, the aggressive extension of
central banks’ balance sheets is playing a role. This is reinforcing the trend
towards low or even negative real yields. These negative yields help to
redistribute wealth, which is needed for rebalancing. This redistribution
method works fine, unless investors start to question solvency. Then,
Nominal economic growth (% yoy)
Source: Thomson Reuters Datastream
redistributing wealth might—in the end—be achieved by defaults. But
we believe that financial repression will continue and investors will not
question states’ solvency, with the exception of the eurozone’s peripheral
countries.
There is a third reason, in addition to the weak economic climate and
financial repression, why rates are likely to stay low for a while. There
is an increasing scarcity of safe bonds. On the one hand, the supply of
safe assets is being negatively affected by downgrades. On the other,
regulatory changes (Solvency II, central clearing) are increasing demand
for safe assets, both as an investment and as collateral.
In short, although we do not foresee a significant rise in long-term interest
rates, we firmly maintain our view that the performance of government
bonds will lag investment-grade credits, as the latter offer a higher
running yield and the opportunity to benefit from falling spreads.
-8
-6
-4
-2
0
2
4
6
8
10
12
90 92 94 96 98 00 02 04 06 08 10 12
US UK Eurozone Japan
22 | Outlook 2013
Spot prices for commodities (EUR)
Source: Thomson Reuters, Datastream, Robeco
On balance, spot prices for commodities have not moved dramatically
in 2012, even though gold has maintained its impressive upward trend.
For investors, the total return on futures matters. Since the start of
2011, with the exception of gold, returns have been roughly flat. Soft
commodities have jumped in 2012, but returns in 2011 were negative.
As 2013 is set to be another year of moderate global economic growth,
we expect most commodity prices to drift sideways. For oil, little change
is expected on supply and demand in the near term. That said, military
action against Iran would have a major impact on the oil price. For
industrial metals, economic growth in China is crucial. As we are not
forecasting a strong economic rebound, we think it is unlikely that
industrial metals prices will rise. In our baseline scenario, we expect
generally flat returns, as most commodities lack a significant positive roll
return on their futures.
Gold has attracted a lot of attention, which is justified by the macro economic
environment of the last few years. The risk that inflation is a part of the
solution to reduce the real value of the growing mountain of government
debt. Gold reserves have increased since 2009, after decades in which central
banks were net sellers. Now, they are buying 200-400 tonnes a year, which
equals around 7-14% of annual gold production.
The peak of the real price of gold at the beginning of the 80s is still 15%
above the current price level. But, as is clear from the chart on page 23,
the gold price is high even in real terms. The more difficult question is
whether gold should be seen as a product whose price in the long term
should rise with inflation, or as a financial asset which should reflect
a certain percentage of the value of the global multi-asset pie. Then
again, historical data paint a completely different picture. The value of
all the gold that has ever been mined relative to the value of all invested
assets is currently 12%, well below the (rather extreme) top of 60% in
1980, but in line with its median since 1970.
Uncertainty may continue to outweigh the negative effects on demand
from India and China’s moderating economies. Given the ongoing
uncertainty about the sustainability of government finances, we can very
well imagine gold drifting higher.
Commodities
Total return on commodity futures (EUR)
Source: Thomson Reuters, Datastream, Robeco
Outlook 2013 | 23
Roll return on commodity futures (EUR)
Source: Thomson Reuters, Datastream, Robeco
Official world gold reserves 1969-2012 (tonnes)
Source: World Gold Council, Robeco
Gold price and the real (inflation-adjusted) gold price (USD)
Source: Thomson Reuters Datastream, Robeco
Value of all ever mined gold as a percentage of value of all invested assets
Source: World Gold Council, Robeco
0
1
2
3
4
5
6
7
8
9
10
0
200
400
600
800
1.000
1.200
1.400
1.600
1.800
2.000
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Gold price Real gold price (right axis)
0%
10%
20%
30%
40%
50%
60%
70%
1970 1975 1980 1985 1990 1995 2000 2005 2010
25000
30000
35000
40000
1969 1974 1979 1984 1989 1994 1999 2004 2009
2009Q1
24 | Outlook 2013
Return expectations by asset class*
Source: Robeco
The table summarizes our expectations—expressed in ranges of expected
returns—for all asset classes. These ranges are based on our baseline
scenario of moderate economic growth, low inflation and low interest
rates that will remain low. If growth surprises on the upside (10% chance)
or a recession starts (25% chance), we expect actual returns to fall outside
these intervals. Even if our baseline scenario materializes, it is possible
that actual returns will be outside these ranges. To illustrate, if one had
to provide a naïve 95% confidence interval on annual equity returns,
one would report a range of expected returns of roughly -30% to 50%.
In short, we provide these ranges simply to indicate what returns seem
reasonable to us for 2013.
Summary on asset classes with expected return intervals
Lower limit Upper limit
Global equities -5% 15%
Global real estate -5% 15%
High yield -2% 8%
Emerging Market Debt -2% 8%
Investment grade credits 1% 6%
High-quality government bonds -2% 4%
Commodities -10% 10%
* The fixed income classes government bonds, investment grade credits and high yield usually are 100% hedged investments. Otherwise, currency fluctuations
would significantly impact total returns. Therefore, our expectations are on a hedged to euros base. For global equities, real estate and emerging market debt we
provide local return estimates. For these asset classes, investors frequently do not implement a 100% hedge. Finally, our commodities return range is based on
US dollars as commodity prices are quoted in dollars.
Outlook 2013 | 25
Regional performances relative to world index
Source: Thomson Financial Datastream
Regional allocationWithin equities, we favor the North America region. From a purely
statistical point of view, there is only a 30% chance that North America
outperforms in a post-election year. We attribute this pattern to
unpopular measures implemented in the first year of presidencies. Now,
we consider it unlikely that the next president will take decisive measures
to tackle the US’s long-term budget problems. Neither candidate has
a convincing plan. Moreover, the victor will not dare to undermine the
weak recovery. We think it is unlikely that the US will enter a recession,
while recession risks in Europe and Japan are clearly higher.
We think it is too early to make a decisive call on Europe. We became less
negative on Europe a few months ago, but we currently lack conviction for
a further upgrade of our view. Austerity will negatively affect growth and
economic weakness brings the risk that the euro will again come under
pressure. During 2013, the definitive turn in the relative performance of
Europe may very well be reached. The economic fall-out from austerity
in Spain and Italy is becoming more visible. Once the full picture has
emerged, a period of outperformance will be more likely. After all, the ECB
has put the bazooka on the table and valuation is appealing.
For the Pacific region, Japan’s prospects dominate the outlook. As 2013
will probably be another lost year for the Japanese economy, with weak
growth and mild inflation, we expect the trend of underperformance
to continue. The BoJ has chosen to join the party started by the Fed.
Weakening growth and increased political stability have left the BoJ no
choice. The plans to increase its current QE program should be considered
as a start. There is more to come. But all its efforts will probably be unable
to seriously undermine the yen against the US dollar. So while the euro is
likely to see medium-term weakness against the US dollar, we expect the
yen to stabilize roughly at current levels around JPY 78 per dollar.
For emerging markets, fundamentals look relatively good. However,
they have been looking relatively good for a while. In the meantime,
performance has been disappointing due to lagging earnings growth.
Valuation is a small positive, but unless momentum strengthens we will
refrain from positioning the region as our favorite pick.
Regional and sector allocation equities
Earnings and valuation data of regions (MSCI AC World)
Source: Thomson Reuters Datastream, Robeco
Earnings growth (%) Earn. rev. index P/E on 12m fwd earn.
2012 2013 12m 3m Current 10y avg.
North America 6.1 11.4 10.1 -16.9 13.0 14.4
Europe -2.7 12.5 9.1 -25.9 11.0 12.4
Pacific 27.5 16.1 23.0 -33.2 12.1 15.6
Emerging Markets 5.3 12.5 10.7 -33.8 10.2 10.7
AC World 5.6 12.4 11.3 -25.4 11.9 13.5
The earnings revisions index is calculated as the difference between the number of up- and
downward revisions relative to the number of total revisions.80
100
120
140
160
180
200
05 07 09 11 North America Europe Pacific Emerging markets
26 | Outlook 2013
Relative performance of defensive sectors and financials
Source: Thomson Reuters, Datastream, Robeco
Sector allocationIn general, defensive sectors have performed better than cyclical sectors
in 2012, as can be seen from the charts. Within cyclicals, there is a
comparable pattern, as the consumer cyclicals and IT sectors, where
earnings have developed in a relatively stable fashion, have done better.
We expect this trend to continue into 2013 for three reasons.
First, from a macroeconomic point of view, a muddling-through economy
supports defensive stocks. Just before economic growth accelerates,
defensive stocks typically underperform. But we do not expect an
acceleration of economic growth. Second, consumer staples and health
care have experienced a gradual rise in earnings that is less sensitive to
earnings downgrades. We saw that in 2012, and expect to see it again
in 2013, as we forecast some rounds of earnings downgrades due to
analysts’ current optimism. Third, risk appetite continues to be low. Low
bond yields drive investors more into defensive stocks than into cyclical
stocks.
Relative performance of cyclical sectors
Source: Thomson Reuters, Datastream, Robeco
50
70
90
110
130
150
170
05 07 09 11
Consumer staples Health care Telecom Utilities Financials
60
80
100
120
140
160
180
05 07 09 11
Energy Materials Industrials Consumer cyclicals IT
Outlook 2013 | 27
Earnings index (EUR) for defensive sectors and financials
Source: Thomson Reuters, Datastream, Robeco
Earnings index (EUR) for cyclical sectors
Source: Thomson Reuters, Datastream, Robeco
Earnings and valuation data of regions (MSCI AC World)
Source: Thomson Reuters Datastream, Robeco
The earnings revisions index is calculated as the difference between the number of up- and downward revisions relative to
the number of total revisions.
Earnings growth (%) Earn. rev. index P/E on 12m fwd earn.
2012 2013 12m 3m Current 10y avg.
Energy -8.9 8.2 3.7 -26.1 10.1 11.4
Materials -14.8 20.4 12.1 -54.2 11.5 12.4
Industrials 8.9 12.1 12.2 -40.4 11.9 14.5
Consumer Discr. 36.4 16.0 23.8 -14.4 12.7 15.6
Consumer Staples 6.1 9.8 9.3 -16.8 15.7 15.8
Health care 3.0 7.9 6.8 -10.0 13.0 14.8
Financials 9.9 11.6 11.4 -9.4 10.3 11.4
IT 11.9 16.7 14.7 -36.5 12.5 17.4
Telecom Services 0.8 9.2 7.3 -9.8 12.6 16.7
Utilities 14.9 15.6 15.4 -2.8 14.9 13.5
AC World 5.6 12.4 11.3 -25.4 11.9 13.5
-200
0
200
400
600
800
1000
1200
95 97 99 01 03 05 07 09 11
Energy Materials Industrials Consumer cyclicals IT
-100
0
100
200
300
400
500
600
95 97 99 01 03 05 07 09 11
Consumer staples Health care Telecom Utilities Financials
1049-1012
Robeco (Headquarters), P.O. Box 973, 3000 AZ Rotterdam, The Netherlands | www.robeco.com
Important informationThis document has been carefully prepared by Robeco Institutional Asset
Management B.V. (Robeco). It is intended to provide the reader with
information on Robeco’s specific capabilities, but does not constitute
a recommendation to buy or sell certain securities or investment products.
Any investment is always subject to risk. Investment decisions should
therefore only be based on the relevant prospectus and on thorough
financial, fiscal and legal advice.
The content of this document is based upon sources of information
believed to be reliable, but no warranty or declaration, either explicit or
implicit, is given as to their accuracy or completeness. This document
is not intended for distribution to or use by any person or entity in any
jurisdiction or country where such distribution or use would be contrary
to local law or regulation. The information contained in this document
is solely intended for professional investors under the Dutch Act on
the Financial Supervision (Wet financieel toezicht) or persons who are
authorized to receive such information under any other applicable laws.
Historical returns are provided for illustrative purposes only and do not
necessarily reflect Robeco’s expectations for the future. Past performances
may not be representative for future results and actual returns may differ
significantly from expectations expressed in this document. The value
of your investments may fluctuate. Results obtained in the past are no
guarantee for the future.
All copyrights, patents and other property in the information contained
in this document are held by Robeco Institutional Asset Management B.V.
No rights whatsoever are licensed or assigned or shall otherwise pass to
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Closing date text: 15 October 2012.
