Luzerner Kantonalbank’s investment team has liquidated its exposure to UK property, the bank announced in its latest commentary.
‘UK real estate became more expensive recently and depending on the course of the Brexit negotiations it could face downward pressure again,’ it said.
As a result, the investment team has reduced its allocation to alternative investments from 12% to 11%. However, despite sensitivity to interest rates they still find Swiss and European real estate attractive because of its high dividends.
Elsewhere, the cantonal bank has increased exposure to equities from 50% to 51% by adding more eurozone names.
Amid companies that the investment team finds attractive are Bayer and Daimler. They said the acquisition of Monsanto is a financial challenge for Bayer and it is important that the company ensures its pharma business won’t suffer as a result.
‘Although we see the reputational and legal risks of the takeover, the global leading product portfolio of the merged group, as well as its synergies, are offering long-term potential.’
The team said Daimler was attractive because the German car manufacturer has a strong model cycle and its equity has an upward potential despite some residual risks in the market.
When it comes to fixed income exposure the cantonal bank maintains its underweight with 33% of allocation in the asset class.
The investment team still underweights Swiss franc-denominated bond space due to the majority of it being in the negative territory.
The asset manager is also underweight euro-denominated bonds because returns from them are low and their potential remains restricted on the backdrop of the returning inflation and the expectation of modestly rising yields.
‘The ECB will continue to implement an expansive monetary policy and bond purchasing programme until at least the end of 2017,’ the team said.
In the non-euro space the investment team holds on to GBP and NOK-denominated bonds.
They are slightly underweight US dollar-denominated bonds in expectation of the Fed rate hikes, while holding NZD-denominated bonds instead of JPY-denominated ones in the Asia Pacific area.