The US technology sector currently trades at a valuation discount to the broad market index compared to its average premium of 20%. We believe the valuation discount is unjustified given the sector's robust earnings growth. Aside from a solid secular growth outlook, below-average earnings volatility, strong balance sheets and a growing focus on increasing dividends are all attributes that should further bolster sector valuations.

Currency diversification is key
Currency diversification is a long-term theme, gaining importance due to rising debt problems and a falling growth outlook of G3 economies. Repatriation to home (or reference) currency is in some cases not anymore the best risk reduction strategy. We reiterate and intensify our recommendation for currency diversification as we believe that many clients feel unease with their current concentration of currency exposure to major currencies and look for advice to find the best diversification currencies.

Emerging market corporates: a growing asset class
We see the emerging markets (EM) oil and gas sector as an attractive fixed income satellite investment to enhance yields. A gradually improving global economic environment should benefit bonds in this segment and provide total returns of 10.5% over the next 12 months. Dips provide good entry points. Fundamentals of EM oil and gas corporates have shown a stable to improving trend over past years and we expect this to continue, given our supportive outlook for the global economy. Furthermore, several Russian companies should benefit from domestic gas price increases, which makes them less vulnerable to fluctuations in global gas prices. Thus, these bonds can balance the performance of a bond portfolio and improve diversification.

US-high-yield corporate bonds
US high yield corporate bonds (US HY) remains our preferred asset class. At the current yield spread US HY compensates well for the inherent risks given robust corporate and economic fundamentals. Our total return outlook is 7% over the next 6 months. We reiterate our dislike for European HY based on the dismal growth outlook, ongoing uncertainty about the Eurozone's future and unfavorable developments in the composition of the universe. US senior bank loans (leveraged loans) provide an attractive alternative to traditional fixed income investments for HY investors with a longer time horizon. While credit and duration risk is considerably lower than for HY bonds, liquidity risk is higher. Investors who want to benefit from the advantages of senior loans should understand the distinct features and risks of this asset class.

Competitive returns from REITs
Global real estate investment trusts (REITs) offer a comprehensive, proven track record of delivering competitive risk-adjusted returns compared to bonds and even equities. Concerted central bank easing and reflationary policies have diminished tail risks for the time being, which in turn provides a very supportive financing environment for public real estate companies around the world. Further capital appreciation in the underlying properties is limited, but still expected in this environment of low interest rates and low (but still positive) growth. The rental cycle now shows that a growing number of locations are in recovery mode or growing slightly, while rental growth pessimism in Japan, Hong Kong and even Europe seems to be fading.

High dividend yields
Equity dividends offer an attractive real income stream in a low yield environment. Quality counts – investors should not be enticed by high yields alone, but should continue to focus on high quality dividends. We recommend dividends that are well covered by earnings and cashflow, are sustainable and growing, and from companies with sound fundamentals. In a lower-growth world, we expect an increase in the contribution of dividends to total equity returns.

Western winners from emerging market growth
Emerging markets are no longer merely creating incremental growth for the world economy – they have become its driving force. Exposure to emerging markets is more valuable than ever. Companies cannot afford to ignore this fact if they want to deliver earnings growth to their shareholders. Our selection of highly-exposed Western blue chips offers a combination of significant sales and profits generated from emerging regions, which should translate into superior share performance.