The Allianz Global Twin Focus Fund (the "Fund") has a three-part investment strategy. Firstly, in a disciplined investment process with qualitative and quantitative selection criteria, the investment manager invests in well-established and large market capitalisation stocks with above-average dividend yield. Secondly, call options on these stocks are sold to generate option premium, enhancing dividends and reducing overall portfolio risk. Finally, to protect against significant market declines affecting the equity portfolio, protective put options are bought systematically. By these means, the Fund’s investment objective to provide a total return from dividend income, option premiums and capital appreciation should lead to sustainable distributions to investors.

Portfolio Highlights

Market Review and Outlook

Global equities started the year strongly, boosted by growing demand for risk assets. Emerging market equities rallied the most, followed by US stocks. In contrast, UK equities retreated modestly, hindered by a rally in sterling and uncertainty over Brexit.

In terms of sectors, information technology and consumer discretionary extended their advance. In contrast, defensive and higher yielding sectors, such as consumer staples, real estate, telecoms and utilities, retreated, undermined by rising bond yields. US equities rose modestly over December. Both large- and small-cap indices touched fresh highs, buoyed by optimism that tax reform would boost company profits. The Senate approved plans for tax cuts, the most sweeping overhaul of the US tax system in more than three decades.

The global economic recovery continues, with reflation being the key underlying issue. Output gaps have narrowed further. The US economy is on a solid path. As long as wage costs do not rise strongly, corporate profits should continue to grow and remain in the middle single digits.

However, US equity valuations are quite expensive and anticipate future profit increases. In Europe, however, interest rate hikes are not yet on the cards, and Asian central banks will keep the liquidity gates open, too. Loose monetary policies should continue to support risky assets, such as equities, even though there is a risk that the US Federal Reserve Board might pursue a more restrictive monetary policy than expected. We will probably see peak liquidity in 2018. Volatility on the capital markets is likely to increase.

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