We hold on to our longer standing overall risk-on tilt as the increasing visibility in the underlying momentum of the cyclical recovery in developed markets continues to provide solid support. We think that the perception of a broadening of the recovery will increase as the negative impact on economic data from bad weather will fade in the current quarter. 

## Will equities catch up with commodities and real estate?

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## Confusing first quarter for investors

Investing is never easy as the first quarter once again underscored. The first three months of the year were characterized by an increasingly synchronized recovery in developed markets, a firm earnings season and multiple eye-catching headlines of turmoil in emerging markets (EM) – Thailand, Venezuela, Turkey, Ukraine, Russia and China, just to name a few. 

Remarkably, this environment translated into clear outperformance for commodities, more volatility than direction in developed equity markets and only modest underperformance in EM assets. Stressing that we live in uncertain times has long lost its shine as an excuse for temporarily misunderstanding markets. Yet it is prudent to explore less “fundamental” reasons for the behaviour of investors over the last three months. 

## Markets influenced by investor sentiment and positioning

In the complex system of global financial markets there is no stability in either the set of driving factors of markets or even the direction of causality between the real economy and markets. Sometimes market dynamics are the consequence of investor behaviour that follows from their shifts in sentiment, management of certain accumulated portfolio concentrations (squaring strongly overweight or underweight positions) or the dominance of certain types of investors.