Investment view

Tactical Asset Allocation


What happens in Ukraine?

With Russia having launched a full-scale invasion of the country overnight, Russian forces attacked targets across Ukraine after President Vladimir Putin vowed to “demilitarize” the country and replace its leaders, triggering the worst security crisis in Europe since World War II and prompting the West to threaten further punishing sanctions in response. Russia launched a barrage of missile, artillery, and air attacks early today, with Ukraine reporting dozens of casualties. Ukraine’s border guard said it was being shelled from five regions, including from Crimea in the south and Belarus to the north, and that Russian tank columns were moving into the country.


Within our TAA Model portfolio we currently have small overweight of just 1% in equities and 1% in European Listed Real Estate (within a 5% bandwidth). In addition, we have a 2% overweight in Europe within global equities. These markets have been hit relatively hard and the risk of a full-scale Russian invasion of Ukraine was underestimated.

Going forward the biggest question is if it’s too late to reduce risk (if close to the bottom we should increase our equity exposure) or if we should still de-risk. Within this context it’s important to separate the expected duration and intensity of the conflict with the duration and intensity of the market reaction as markets may have already, to a large extend, priced in a certain conflict scenario.

We have considered the next 3 scenario’s:

Within the latter 2 scenarios we should de-risk. However, we expect this to be the wrong thing to do if scenario 1 holds as we think this scenario has already been more than discounted for by now (equities already dropped substantial). For now, we decided to wait and see for the next few days before we change or position and accept the risk of further short-term losses.


Fixed Income


Initial fixed income market reactions

Yesterday, markets still had some hope that Russia wouldn’t go any further than the Eastern region of Ukraine, but that hope proved short-lived.

The first reaction was a typical risk off move with declining core European rates. German 10y sovereign yield opened 10 basis points lower than yesterday’s close (from 23 to 13 basis points). US 10-year yields dropped 13 basis points to 1.86%. Central banks rate hike expectation declined somewhat, but not convincingly given the stagflationary impact of the oil shock. Swap rates did not fall that rapidly, resulting in widening swap spreads, 10y German rates are now 65 basis points below 10y swap.

Intra-European sovereign spreads also widened, mainly on the back of the German yield falling while peripheral yields did not.

The 10-year Italy-Germany spread climbed shortly above 175 basis points (back to the levels we saw two days ago), Spain briefly above 105 basis points and Portugal above 95 basis points.

Breakeven rates have risen, especially the shorter maturities (2y European breakeven now at 3.20%), but also 10y breakeven up and now firmly above 2%.

Main drivers for this are the commodity markets (especially oil and gas, Brent Crude rose from 97.5 to 102). Real yields declined (10y Eur back at -1.37%, already 20 basis points lower since peak in February).

The US dollar appreciated approximately 1% and the Eur is now at USD 1.124.


In terms of curve and duration, we are positioned quite neutral in our European fixed income portfolios. Our longer-term outlook of higher rates conflicts with the shorter-term technical momentum (as is also picked up by our quantitative approach).

While we started the year being underweight in peripheral countries, we have closed these positions and took profit as spreads widened. Consequently, we now also have a rather neutral position in intra-European country spreads.

ACTIAM Sustainable Emerging Markets Debt Fund (HC)

In the EMD fund, there are no investments in Russia, in line with the ACTIAM ESG policy. We have an underweight position of -2,10% vs BM for Russia. Ukraine on the other hand is not excluded, and the actual weight is aligned with that of the benchmark. 2,33% for the portfolio and 2,35% for the benchmark.  

First Market reactions for these sovereigns was that Russian bonds were 15-25 points lower and for Ukraine it was 10-20 points. Flow wise it was muted on the open.

Credit markets

Market reaction IG Credit

After the attack of Russia on Ukraine, Investment Grade credit spreads widened this morning on average 10-15 basis points. In the days, weeks before the attack the spreads already leaked wider because of rising tensions. Before the attack begun, we were year to date on average 22 basis points wider but that was also attributable to amongst others the more hawkish central bank policy.

Investors are in wait and see mode for the moment. Spreads widening is most related to market makers adjusting their marking. The spread reaction for high beta paper is much more fierce than higher quality credits. Financials more volatile than non-financials. Non-Financials: A circa +7 basis points, BBB circa +15 basis points. Financials: senior 7-15 basis points, LT2 +10-20 basis points, AT1 -1.5 pnt

Positioning and impact

We do not have direct exposure to Russia and or Ukraine issuers in the credit portfolios. However, it is likely that oil and gas intensive sectors & issuers get hit in their P&L because of further rising prices. Some EUR issuers have exposure to the region. We have limited exposure to these issuers. For example, 24% of Total Energies total reserves are in Russia. Engie and OMV both have provided a loan (up to € 950 million) to Gazprom for the financing of Nord Stream 2. Some European banks (like RBI & UniCredit) have small credit exposure to Russia and Ukraine but the exposure is manageable. Also because of their diversified business model and exposure. The issuers are trading wider, but the deviation versus sector peers is limited. Reaction for these issuers is also related to the sector and instrument. Total 9-year senior leaked wider to swap + 105 from swap +90 at the start of February (exposure in our portfolio). RBI subordinated T2 widened this month to swap + 320 from swap + 200 (no exposure).

We remain cautious in our credit positioning. The risk premiums are higher, but there is a lot of uncertainty and spreads will remain volatile, will leak wider on negative headlines.

Equity markets

Thursday morning’s news that Putin directed a full-scale invasion of the Ukraine has a significant impact on global equity markets. Equity markets were already nervous due to the built up of geo-political tensions over the past weeks and volatility had spiked up. The VIX has spiked to a 12-month high of 36. European equity markets prove most vulnerable, not surprisingly as the invasion could become the largest conflict in Europe since the second world war. Most Western European markets pull back by 3 to 4% by mid-day, but several exchanges in Eastern Europe see even bigger declines. The Russian equity market (at the lowest point down 50%, however regained some ground and trades at -30%) and currency is in full free fall.

The US markets are set to pull back as well (by about -2% as indicated by futures) but as the US dollar is appreciating versus the Euro, by +1.2% compared to yesterday, Europe is by far the weakest region.

As energy prices rise dramatically (Brent nearing $105) and consumer confidence is likely to suffer significantly, these developments are negative to growth and push up inflation. This creates a risk-off repositioning away from the cyclical segments of the markets (financials, consumer discretionary) towards defensive sectors such as consumer staples, real estate, healthcare, and utilities. Thus, in European equity markets financials and consumer discretionary are the weakest sectors today. However, industrials and technology are not far behind. All sectors are down and even the energy sector is down -1% despite significantly higher energy prices. A big drag on the sector are the declines in British Petroleum (BP) and Total Energies. BP owns a 20% stake in Rosneft, the Russian Oil company which could be affected by sanctions. Total Energies has sizeable operations in Russia.

In the coming days/weeks we will get more clarity also on policy implications with regards to capital markets and central banks. With a prolonged conflict, higher commodity prices that weigh on growth prospects in Europe, hiking interest rates by especially by the ECB would be a tough pill to swallow. The implication here would be that the policy instruments are not effective or would be difficult to implement, and if so, could ultimately lead to a potential period of stagflation.



Within our equity strategies only the Actiam Emerging Market Index fund has direct exposure in Russian companies. These companies comply with the ACTIAM sustainability policy (including the current sanction list). The Russian companies we invest in, have been reviewed by our ESG team on increased risk of being added to the sanction list in the context of new sanctions. Given the nature of the activities of the Russian companies we invest in there is now no reason to exclude one of these companies. Given that the Emerging Market Index Fund is a passive index fund, pre-emptive selling of Russian exposure is therefore unwarranted at this point in time. Portfolio management will act whenever there is concrete evidence of access to capital markets deteriorating, where this could prevent trading on exchanges when sanctions are implemented for instance.  This will be monitored continuously.

Other regional passive portfolios will be hit indirectly through general impacts of an increased conflict, due to ESG related exclusions in the Defence, Energy sector and Materials sectors. Increasing fossil fuel prices could impact relative performance negatively in these portfolios.


In none of the Actiam Active equity strategies there is direct Russian or Ukrainian exposure (i.e., no shares listed in Russia or Ukraine). Still the strategies are indirectly affected in a number of ways.

First: several of the holdings do have some exposure to the region as they sell product and services into Russia and Ukraine. In most cases this exposure is limited to low single digit share of revenues or EBIT. Only in certain sectors such as the beverage sector we have some holdings where the exposure is closer to 15%. We do witness above average drops in these companies’ share prices relative to peers. We have no exposure to above mentioned BP or Total Energies.

Second: the escalation of the conflict creates a risk-off attitude amongst investors which affects our positioning. Especially the decline in bond yields and the resulting flattening of the yield curve leads to a pull-back in financials especially in Europe. This is a segment of the market where we are overweight. Although direct exposure to the affected region is limited across our holdings, this part of the portfolio sees most losses.

Thirdly: it appears from the move in several commodity prices that inflationary pressures are likely to build up further. This will have an implication for the outlook for earnings growth across European markets and investors are discounting the possibility of a wave of downward revisions. We have limited benefits from higher commodity prices in the portfolio as most of the commodity producers tend to have poor ESG profiles.

We keep monitoring closely in what way our holdings are affected under different scenarios. The conflict may evolve into and will assess whether we should act given developments. However, we believe the portfolios are well diversified over countries, currencies, sectors, and styles to weather this volatility over time.