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Investments
With an eye to the outcome of the US presidential election and the stabilising tendencies in Europe, coupled with political and economic uncertainties around the world, the conservative posture of substantial parts of our investment portfolio will be preserved. Nevertheless, irrespective of the sovereign debt issue, the improved economic outlook will also be reflected in appropriate risk-taking. Our emphasis on broad diversification will be retained unchanged. By way of a neutral modified duration we shall ensure that the interest rate risk is tightly managed.
The enlargement of the asset portfolio is expected to have a positive effect on investment income, although the average return will decline owing to persistently low interest rates. The interest rate increases observed since the end of the period under review in our main currency areas could bring some relief in this respect. In view of the low returns on more secure investments, we shall continue to invest in products offering attractive credit spreads and selectively expand our portfolio in the areas of alternative investments and real estate.
In view of the high capital requirements and possibly increased volatility on equity markets, which are in part liquidity-driven, we are for the time being adopting a more cautious stance on additional new exposures to listed equities given the prevailing valuation levels.