Global Conservative portfolio outlook, positioning, and attribution as of 6/30/2020
June 30, 2020
- We believe a U.S. economic recovery is underway, and that it is tracking ahead of our expectations from early Q2.
- U.S. retail spending data is improving faster than retail traffic data, and U.S. consumers have amassed significant savings that we believe could fuel continued consumption growth.
- Over the intermediate term, we believe significant fiscal and monetary support for U.S. consumers and businesses, as well as attractive interest rate-adjusted equity valuations, should set the stage for continued equity market gains during the recovery.
- The prospects for international economies are less clear, in our view, as Europe was already facing greater challenges before the crisis and is also very reliant on tourism, while many Asian economies rely on global trade, which remains constrained.
- Risks to the U.S. economic and market recovery remain, including the potential for resurgent infection rates to slow or derail the recovery, a slowdown in consumer spending after record fiscal stimulus boosted trends, and for non-COVID issues, like the 2020 election, to impact investor sentiment.
- Corporate bond yields remain elevated relative to Treasury bonds, and we believe there is room for rates to move higher and for credit spreads to narrow to non-recessionary levels as the economic recovery continues to take shape.
- We have continued to shift away from the defensive portfolio positioning we had in place at the start of the COVID-19 crisis, while seeking to balance opportunity against ongoing medical, political, and economic risks.
- We increased economically-sensitive U.S. Financials and Industrials equities allocations, while reducing U.S. Health Care exposure and eliminating a U.S. large-cap Utilities allocation, but we believe continued economic uncertainty still warrants exposure to defensive sectors.
- We continue to underweight international equities, given the relative economic strength of the U.S., opportunities we see in certain U.S. sectors, and risks abroad.
- Within the fixed-income allocation, we retain an overweight to investment-grade corporate bonds and a shorter average duration than the benchmark to manage interest rate risk.
- Investment Grade Corporate Bonds
- U.S. Communication Services Equities
- U.S. Treasury Securities
- U.S. Health Care Equities
- U.S. Consumer Staples Equities
- U.S. Information Technology Equities