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Impact Investing

IPE special report May 2018

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Netherlands: Equity prospects good

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The salient characteristic of the Dutch market for Gerrit Russelman, chief investment manager at health workers' fund PGGM, is the movement of money out of bonds and into equities.

The current asset allocation of the Dfl55bn ($29bn) PGGM fund is 52% equities, 35% fixed interest and 13% in real estate, reflecting the better equity returns.

For fixed interest, Russelman says that he expects movement within a very small range, predicting yields of 5.6-5.7% at the end of the year, although he suggests that there could even be a decline with strong European growth in particular in Germany. The one proviso is that there are no problems surrounding the introduction of the single European currency. He adds: On this basis we are quite optimistic about equities."

The fund has already met much of its target for equity returns for the year. However, in the light of the fairly benign interest rate climate he suggests that the market could grow a further 5%.

He acknowledges that there could be some impact on interest rates, particularly in a market so heavily influenced by the dollar, if it continues to strengthen, but he does not see this as particularly likely as dollar uptake is quite high already.

With such a small risk of a significant rise in interest rates, equity appears to have good long-term prospects. "There is an underlying switch from fixed-interest money to equity, on the basis of very small returns on the bond market. Longer term there is a possibility of a benign inflation climate and subdued long-term interest rates and that is causing a shift in the allocation."

In addition, he says there is also a shift towards equities in the asset/liability models for pension funds and insurance companies. This pro-equity climate is further reinforced by the restructuring adopted by companies across Europe.

This in turn affects his equity holdings. "I would favour companies which can show good cost control and the benefits of restructuring and those companies which have reasonable to good growth prospects in the markets, companies which have an edge on their competitors, ie, the stable growth companies." The sectors he picks out are financials, given the interest rate position, and publishing, traditionally a good growth sector."

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