ABN Amro Trims Stock Holdings as VIX Rises on Fed Bets

ABN Amro Private Banking trimmed its global equity allocation for the first time in a year as investor speculation that the Federal Reserve may reduce the pace of its asset purchases sent a measure of volatility to a 15-week high this month.

ABN Amro's wealth-management unit cut its equity holding to 40 percent in June from 44 percent in March after increasing it for three consecutive quarters. It raised its cash investment to 13 percent from zero, the highest in a year. The Chicago Board Options Exchange Volatility Index, or VIX, a gauge of options used to protect against losses in the Standard & Poor's 500 Index, rose to 18.59 on June 12, the highest since Feb. 25.

"We're seeing higher volatility across almost all asset classes," Didier Duret, chief investment officer for the private bank, which manages 165 billion euros ($220 billion), said in an interview from Amsterdam yesterday. "We want to observe the volatility in the equity and currency markets, and manage risk. Seeing volatility come down would be an opportunity for us to go back into equities, which are the next target."

The S&P 500 has lost 1.8 percent from a record on May 21, the day before Fed Chairman Ben S. Bernanke said the central bank could pare stimulus if the U.S. economy improves sustainably. The Fed will hold its two-day policy meeting beginning today, with Bernanke scheduled to speak after the central bank's decision tomorrow.

Economic Data

Investors have been watching economic data to determine whether growth is strong enough to prompt the bank to scale back stimulus measures. Bernanke may provide some visibility on when the Fed plans to begin reducing its $85 billion in monthly asset purchases, which will give investors more certainty and may bring down volatility, according to ABN Amro's Duret.

"It's been a live experiment for the Fed to just observe what could happen when they really do scale down asset purchases," he said by phone. "The Fed has done well to manage what was an expectation of infinite Fed liquidity in the system."

ABN Amro Private Banking still maintained its overweight position in equities for a fourth quarter, meaning it holds more of the assets than represented in benchmark portfolios, as recent drops provide opportunities to buy into an improving U.S. economy. Stocks with above-average earnings growth, like information technology companies, will gain the most, Duret said.

Not Worried

"We are not worried," he said. "On the contrary, it's allocating from what has been dependent on central bank liquidity to fundamentally grounded equities which have earnings growth behind them. The strategy is really rotating into growth stocks."

The VStoxx Index, a measure of volatility in the Euro Stoxx 50 Index, rose to 22.27 on June 5, its highest since April 17.

ABN Amro Private Banking started selling European equities and reduced its position to underweight as the Euro Stoxx 50, which tracks the largest companies in the euro-area, last month reached its highest level since July 2011. ABN diversified its stock holdings in the region after the rally made northern European markets expensive, Duret said.

"What's new is we're not focusing only on northern countries, but we also want to broaden our exposure in Europe. It's more investing into the Stoxx 600 than the Euro Stoxx 50 (SX5E) now, so now we have a broader exposure that also includes peripheral markets."