1. Investing
after the crisis
November 2014
Valentijn van Nieuwenhuijzen
explains how he and his team
endeavour to make optimum
use of opportunities in today’s
markets.
In-depth insights on important issues affecting the global economy and financial markets
»Tactical Asset Allocation at ING Investment Management«
MindScope
WWW.INGIM.COM

2. 2Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
Tactical Asset Allocation at ING Investment Management:
‘Analysis of human behaviour has
become much more important’
Van Nieuwenhuijzen is head strategist of the Multi-Asset
boutique at ING IM. Together with the members of his team,
he aims for optimum portfolio asset allocation, i.e. the break-
down of a portfolio into equities, bonds and other investment
categories and subcategories. Van Nieuwenhuijzen stresses
that this, even more than before the credit crisis, is a dynamic
process; a process in which not only fundamental factors but
also behavioural factors play a role. He thinks that the greater
dynamics are largely due to the fact that the global economy
has become much more complex, partly because of the greater
interdependence between regions. Another factor, in Van
Nieuwenhuijzen’s view, is that new groups of investors, e.g.
hedge funds, have become bigger and hence dominant to
a greater or lesser extent depending on the type of market.
These groups of investors often differ from each other in
investment objectives and thus also in the way in which they
operate in any market.
The Multi-Asset boutique in outline
Within ING Investment Management, Multi-Asset (MA)
is an investment boutique that manages a wide array of
multi-asset portfolios across the spectrum of traditional
balanced products and total return solutions. Multi-
Asset offers also stand-alone component strategies
(building blocks) that can be used independently and
as diversifying contributions to clients’ proprietary
multi-asset needs.
The Multi-Asset investment boutique consists of 19
professionals with an average of 13 years’ experience.
We believe in disciplined and flexible forecasting of
fundamentals and market behaviour, coupled with
excellent risk management is the path to deliver consist-
ent added value for clients. The Multi-Asset boutique
is involved in overseeing around € 23 billion, both for
retail and institutional clients (per end September 2014).
Never-ending need to generate new
knowledge
‘Our knowledge of how the economy and markets work has
admittedly increased considerably in the past few decades, but
new developments always create new uncertainties. Just think
of the possibilities that information technology has created for
data gathering and massive order processing without the direct
intermediary of dealers. There’s always more we don’t know than
we do know. And moreover the known answers to questions can
become obsolete more quickly than people often imagine.’
‘The credit crisis impinged on the fundamentals of the market
economy. Quantitative models developed to convert uncertainties
into measurable risks appeared to have created imaginary
certainties. Under the influence of human emotions, particularly
fear and greed, markets appear to be gripped by herd-like behav-
The credit crisis has made it clear that markets are not always efficient, but are
influenced by the fears and greed of flesh and blood human beings. So it is logical
that ING IM’s strategy of placing bets now attaches more importance to what
Keynes termed animal spirits. Valentijn van Nieuwenhuijzen explains how he and
his team endeavour to make optimum use of opportunities in today’s markets.
Herd-like behavior is not uncommon in markets

3. 3Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
Summary
Market knowledge is an evolutionary process
Scientific analysis and assumptions of rational behaviour
can help to generate new insights, but this approach also
has its limitations. Before the credit crisis, a crucial question
in mainstream economics was whether markets immedi-
ately factor all information into the prices of equities and
other securities, in other words whether markets are
efficient. Eminent economists based their research on
market efficiency. To an increasing extent, particularly after
the credit crisis, this theory has appeared to be too limited
to generate sufficiently reliable and useful knowledge of
the real behaviour of markets. It has become increasingly
clear that behavioural finance can add practical knowledge
to this. Behavioural finance, which makes use of the
insights of social psychology, biology and the cognitive
sciences, analyses the behaviour of groups of investors and
speculates what this knowledge means to markets and
their dynamics. Thus markets, under the influence of
widespread fear, were severely dysfunctional for a long
time during the credit crisis. All in all, it has become clear
that insight into behavioural factors is essential to really
understand the markets. Valentijn van Nieuwenhuijzen,
head strategist of the Multi-Asset boutique at ING IM,
and his team take account of the insights of behavioural
finance when selecting investment categories for the
portfolios they manage. These insights derived from
behavioural finance are also come in very useful when
deciding the weights of those categories in the portfolios.
Responding to a challenging investment
environment
Valentijn van Nieuwenhuijzen makes clear in this MindScope
how he and his team treat this knowledge and the challenges
with which the markets currently confront them. These
challenges are partly due to the greatly increased importance of
markets in the global economy as a consequence of globalisa-
tion and deregulation of financial markets. At the same time,
information technology, which has made it possible to collect
and analyse vast quantities of data, has radically changed the
investment environment. The dynamic information flows
confront the world with a mounting number of feedback loops,
events that set other events in motion. Many investors appear
sensitive to the emotion in the market and to the acceleration
and short-term thinking that are partly triggered by the quantity
of information and the speed of data flows. That leads to
additional risks for investors but also creates new opportunities,
as Van Nieuwenhuijzen explains in this MindScope.
Wide range of signals is basis for always adequate
positioning
In order to be continuously alert to opportunities, and to use
them efficiently and with an acceptable risk, Van Nieuwenhuijzen
and his team study a very wide range of market signals, model
outcomes, risk indicators and last but not least, fundamental
factors. The aim is to be always adequately positioned in the
portfolios and to make optimum use of opportunities to add
value without running excessive risk.
Van Nieuwenhuijzen illustrates his team’s approach with
specific examples. That their approach works is obvious
from the results of their portfolio management.
iour and disruptions. Emotions can have such a radical influence
that markets can no longer function. Due to the credit crisis,
the results of economic research on efficient market theory as a
source of knowledge have also come under heavier pressure.’
In 1990 Harry Markowitz, William F. Sharpe en Merton H.
Miller, who carried out scientific research quantitative models
in economics, were awarded the prestigious Bank of Sweden
Prize, commonly referred to as the Nobel Prize in Economics.
In 1997 the economists Myron S. Scholes and Robert C.
Merton received this prize.
Where there are risks, there are also
opportunities
‘Our stance when taking positions in our tactical allocation is
different in a number of respects from the way it was before
the credit crisis. This has to do with the changes in the invest-
ment environment. There are major imbalances in the global
economy, so it is consequently less able to absorb any shocks
that may occur, such as a financial crisis or a sharp rise in oil
prices. This means that economic cycles have become shorter.
So if we want to earn money for our clients, we need to be
quick to respond to any opportunities that arise in a market.
Due to the greater vulnerability of the economy, opportuni-
ties can soon disappear. Risks can quickly increase. This does
not mean that we ignore the longer term, but that we have
paid more attention in recent years to current dynamics in the
market and to factors that explain investor behaviour. In our job
it is important to realise that both financial economic reasoning
and emotions play a part in the markets. That makes my daily
work a difficult, but also a particularly intriguing, challenge.’
What happens in markets and what do
investors do?
Van Nieuwenhuijzen mentions a number of themes on which
he focuses.
‘What are the empirical trends in a market? Which groups of
investors operate in a market? What is the role of the various
groups of investors? Hedge funds are geared more to the

4. 4Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
short term than pension funds and other institutional inves-
tors. They also have different objectives and employ a different
type of professional. Which groups of investors are dominant,
compared with previous years, and where are they over and
under-invested? In what direction are global capital flows
moving? Are cash holdings larger than average?’
‘From these perspectives, we try to get to know a market as
closely as possible and to fathom the emotion that is in the
market. We don’t just rely on our own extensive research, but
also use external data produced by strategists at investment
banks and independent institutions (IMF, OECD, BIS, etc.) and
individual academics, for example. We try to generate informa-
tion on matters like investment trends and investor sentiment
in as many ways as possible. We also continue to use pricing
models, but decision-making processes based on market evolu-
tion now weigh heavier than in the past.’
We place as many bets as possible
‘The market risks have decidedly increased in recent years, but
if we only looked at the risks, we would have little chance of
succeeding in adding value for our clients. Of course we keep
a close eye on the risks, but we don’t ignore the opportuni-
ties either. Apart from paying more attention to behavioural
factors, we also include more different bets in portfolios.
We remain alert and quickly wind down our positions if our
analyses suggest that is necessary. Because the cycles have
become shorter and at the same time more vulnerable to
shocks, our tactical asset allocation is geared to the shorter
term.’
‘An important element of our current tactical allocation is that
we can take positions in a much wider range of categories
and subcategories than was the case a few years ago. We no
longer take only equity positions versus fixed income securities.
Depending on our analyses of the market situation and the
fundamentals, we also bet on real estate stocks, commodities
and commodity subgroups, such as precious metals and indus-
trial metals, and – more specifically – on a particular metal,
gold for instance. We can also take positions in equity sectors
and equity regions and in the higher risk fixed income catego-
ries, such as (high yield) corporate bonds, and in currencies.
‘The more positions we take based on our analyses, the greater
is the chance that we will outperform our benchmark or our
targeted return, and thus earn money (or limit the loss) for our
clients. All in all, the current investment process offers many
more options for focusing on specific sections of the market
in order to make use of the opportunities that we see. We can
also underweight the parts of a market in which we see above-
average risks. That gives us plenty of opportunities to spread
the risks and to beat our benchmark or safeguard returns.
‘Our detailed tactical asset allocation process and the practical
implementation of this are also good pegs for communicating
our vision of the global financial markets.’
Top-down process goes down to the real world
Van Nieuwenhuijzen thinks that long-term economic models
will play a less important role than in the past in the tactical
(and strategic) asset allocation process. ‘We now take a much
closer look at the real behaviour of markets and of the groups
of investors in markets. When we use models, we do so purely
as aids to the tactical asset allocation process. Moreover, we
consider it very important to know the limits of models and to
assign them a place in our investment process that is strictly
within those limits.’
‘Since the credit crisis, economists’ interest in disciplines like
biology, neuroscience, social psychology and sociology has
increased considerably. Behavioural finance has been a branch
of economics for a long time. The behaviour of economic
actors and the limits of rational behaviour were crucial themes
for the British economist John Maynard Keynes (1883-1946)
in his analyses of economic reality. But since the credit crisis
exponents of behavioural finance have clearly gained prestige.
How market behaviour has made us make
a move
During April 2014, even encouraging macro figures failed
to induce investors to take much risk. Concerns for rising
valuations (of biotech shares, for example) and persistent
tensions between Russia and Ukraine left markets trading
sidewise. While we have been positive about equities
since the start of the year, our conviction has been further
strengthened at the beginning of May. This was partially
due to a turnaround in “risk seeking behaviour” among
investors, which became pro-risk seeking as captured by
our quantitative model which considers this indictor to
assess investor sentiment. Coupled with an increasing
positive short term momentum of the equity market,
these behavioural signals prompted us to increase our
equity exposure further. This proved to be a good move
as May kicked off a two month rally from which we could
fully benefit thanks to our aggressive positioning.
Note:
Both risk seeking behaviour among investors as well as
short term market momentum are examples of a broader
set of behavioural indicators which our team considers in
order to assess the relative attractiveness of specific asset
classes. While risk seeking behaviour among investors
directly translates into flows and price support of riskier
asset classes such as equities, short term momentum
– a so called relative strength indicator – has been docu-
mented to partially predict future returns due to observed
patterns of persistence in returns. These in turn are argued
to be the result of market participant psychology and their
herding behaviour in particular.
Valentijn van Nieuwenhuijzen, Head of Multi-Asset
boutique

5. 5Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
‘We have made and will continue to make avid use of their
insights in our quest for ways in which to add value to our
portfolios in a responsible manner,’ says Van Nieuwenhuijzen.
Examples of a behavioural finance approach
Particularly when influenced by panic and greed, investors lose
their grip on reality.
‘We saw that during the credit crisis massive panic broke out
among investors and markets could no longer function. We
also note that investors are often too quick to sell once they
are in a position to take profit. What you also often see is
the reverse: investors don’t sell shares or bonds because they
would then incur a loss. Their reasoning is that they are not
prepared to take a loss and won’t sell until they can again
show a profit. Another irrational trait is the home bias: the fact
that Dutch investors frequently have Dutch shares relatively
often in their portfolios and explain this by the fact that they
live in the Netherlands.’
Why is it important at the moment to study
market dynamics?
‘It’s nothing new for emotions playing a role in trading,’
Van Nieuwenhuijzen remarks. ‘The world experienced
bubbles hundreds of years ago; the tulip mania that gripped the
Netherlands between 1634 and 1637 is a good example.
The great difference between now and earlier is that financial
markets have grown enormously in importance in the past few
decades. They are now many times bigger than the real economy.
That means that shocks in the financial world can have a much
greater impact on the actors in the real economy, on consumers,
businesses and governments. Financial markets can in certain
circumstances even give rise to a self-fulfilling prophecy. The fears
of investors can infect the real economy. Even more so, fears that
a eurozone country will no longer be able to meet its debt repay-
ment, for example, can become reality. Market fears can drive up
the interest rates that a country must pay to such a high level that
the country’s fundamentals come under (further) pressure.’
Analysis of human behaviour has become much more important
Market behaviour can drive the markets;
qualitative judgment remains critical
In the first half of October 2014 markets have witnessed a
notable risk-off sentiment among investors. This had signifi-
cant impact on equity markets as well as riskier credit sectors
such as high yield. Despite deteriorating market dynamics,
our fundamental analysis has led us to believe that this dip
was somewhat irrational and did not reflect fundaments.
We rigorously assessed the probability that this negative
sentiment would create its own fundamental reality, but
arrived at the conclusion that this was not the case.
Consequently, we increased our exposure towards high
yield bonds as well as real estate to take advantage of
what we perceived to be market opportunity. This turned
out to be a good call, as an upward correction followed.
Valentijn van Nieuwenhuijzen, Head of Multi-Asset boutique

6. 6Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
Danger of massive snowball effects
‘The world in which we live features a growing number of
feedback loops, events that set other events in motion. We live
in a world in which information circulates at an ever-faster pace
and massive snowball effects can arise. The risk of contagion
has become a greatly underestimated and immense problem.
The fact that people are unaware of the knock-on effects of
their decisions is contributing to the fact that the importance of
the contagion phenomenon is being disregarded once again.’
‘All things considered, the risk of contagion between different
parts of the market, different markets and from the market
to the economy is many times greater than we could have
imagined a few decades ago. The mass media, along with the
globalisation of the economy and the deregulation of the finan-
cial sector, have played a part in this. As a consequence, large
capital flows have become a dominating factor in the markets.
The housing crisis / credit crisis that originated in the United
States has had and is having a global impact. This was also the
case with the earthquake and nuclear disaster in Japan in March
2011. Images of the disaster went round the world many times
and led to a global discussion on the risks attached to nuclear
energy. The Japanese disaster also illustrated the increased
vulnerability of major organisations worldwide. Many companies
have adopted efficient “just in time” inventory management.
That efficiency is a good thing under normal circumstances, but
it makes companies vulnerable if a disaster stops a supplier of
crucial components from delivering on time. In short, production
breakdowns can temporarily have a worldwide impact.’
Awards won in 2014
• Morningstar Awards – 7 awards won for the
Patrimonial Aggressive, Patrimonial Balanced and
Dynamic Mix funds II and III, in Belgium, France,
Netherlands and Luxembourg within their respective
Morningstar categories.
• LIPPER Fund Awards – 2 awards won for Dynamic
Mix funds II and V in the Netherlands
• Vwd Fund Award - 1 award won for Dynamic Mix
fund IV in the Netherlands
More information does not automatically
mean more rational decisions
‘We live in an information society with massive flows of
information going around the world at ever greater speed.
That is in itself contagious. But the fact that more people feel
the world is becoming increasingly complex can also have a
political effect. Many people in our global world are looking
for something to believe in. That is one explanation for the
appeal of politicians with a more or less populist message.
This again can have an impact on economic decision making.’
‘The enormous information flows and the uncertainties can also
result in people increasingly taking decisions on an emotional
basis.’ Expert specialists are not exempt from this danger. This
means that more information need not in itself lead to more
knowledge. The increasing specialisation of professionals can
actually heighten the risk of tunnel vision among specialists.
The persistent repeats of informative television programmes can
also contribute to keeping the way people think and act more
emphatically inside the frame. In the investment world, this
can mean that contagious optimism (with the risk of bubbles)
and contagious pessimism (with the risk of tumbling prices) is
lurking just around the corner.’
Van Nieuwenhuijzen concludes that imitation, contagion and
herd-like behaviour are more likely to increase than decrease.
He stresses that this situation continues to offer plenty of
options for taking advantage of the opportunities of non-
rational behaviour. ‘By focusing our tactical asset allocation on
the evolution of the financial system and market dynamics, we
see good opportunities to add value to our clients’ portfolios.’
Investment process Van Nieuwenhuijzen’s team
Van Nieuwenhuijzen’s team witnesses the complexity and
volatility in the economic and investment reality every day
in the pursuance of their objective, i.e. to add optimum
value to their clients’ portfolios. This means that they take
into account both the lessons of economic and financial
theory and also the evolution of the market, and they
factor in the human emotion in a market when making
decisions. What does that imply for the investment process
of Van Nieuwenhuijzen’s team?
Van Nieuwenhuijzen says: ’We’ll always spread the risks
widely and look at the possible impact those positions
can have on the portfolio. We protect our decision making
from inconsistencies over time and make sure that both
the size of the positions and also the total portfolio risk
always depend on the depth of our convictions, thus are
dynamic across time. Besides this, we guard against excess
confidence in the benefits of diversification and in the sta-
bility of correlations between positions. One way in which
the latter manifests itself is our insistence that our port-
folios are always divided into a ‘safe’ block and a ‘return’
block. The first block offers protection (positive returns) in
bad times, while the second block provides performance
in a bull market. Ultimately, we attempt to seize as many
opportunities in the markets as possible. These opportuni-
ties may spring from one or more of the following sources:
fundamental analysis, lessons learned from rational agent
economic theory, emotions (“animal spirits”) and human
behaviour in a broad sense. Our ongoing attention to the
last factor also teaches us how we can best protect our
own thinking patterns from the inconsistencies inherent in
the human mindset.’

7. 7Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
Behaviour analysis is of structural
importance to our tactical asset allocation
Many investors are sensitive to the emotion in the market
and short-term thinking. This is often encouraged by the
huge daily information flows and the expanding possibilities
of information technology.
‘Certainly, this provides market opportunities. However,
irrational behaviour is also something we, as strategists, must
guard against. We realise very well that investors look at trends,
take reputation and career risk into account, and display herd-
like behaviour. This often reinforces existing trends. It therefore
makes sense for us to study the market as intensely as possible
in order to detect what specifically is moving in certain markets
and what the triggers for those movements are. We don’t want
to say goodbye to an upward trend too soon, but we do want
to guard against the danger of market bias. We therefore study
very different signals, model outcomes and risk indicators, and
apply strict investment rules to ensure that our decision making
process is consistent. We’re convinced that this increases the
chances of our always being adequately positioned to make
the most of opportunities and to keep risks manageable.
‘I find it a daily challenge in a world that by definition is
not entirely predictable to achieve our objective: to ensure
sustainable added value for our clients’ portfolios with the
lowest possible risk,’ Van Nieuwenhuijzen concludes.
We would like to thank Valentijn van Nieuwenhuijzen for
this interview. For more information about the Multi-Asset
boutique please contact Steven Steyaert, Senior Portfolio
Specialist Multi-Asset at steven.steyaert@ingim.com

8. 8Mindscope - Tactical Asset AllocationING INVESTMENT MANAGEMENT
Disclaimer
The elements contained in this document have been prepared solely for the purpose of information and do not constitute an
offer, in particular a prospectus or any invitation to treat, buy or sell any security or to participate in any trading strategy. Investors
should seek their own advice if in doubt about the suitability of any investment. While particular attention has been paid to the
contents of this document, no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or
completeness thereof. Any information given in this document may be subject to change or update without notice. Neither ING
Investment Management Holdings N.V. nor any other company or unit belonging to the NN Group or the ING Group, nor any of
its officers, directors or employees can be held direct or indirect liable or responsible with respect to the information and/or
recommendations of any kind expressed herein. Investment sustains risks. Please note that the value of your investment may rise
or fall and also that past performance is not indicative of future results and shall in no event be deemed as such. This document
and information contained herein must not be copied, reproduced, distributed or passed to any person at any time without our
prior written consent. This document is not intended and may not be used to solicit sales of investments or subscription of
securities in countries where this is prohibited by the relevant authorities or legislation. Any claims arising out of or in connection
with the terms and conditions of this disclaimer are governed by Dutch law.