Global Equity portfolio outlook, positioning, and attribution as of 3/31/2020
March 31, 2020
- The near-term economic impacts of the COVID-19 crisis will be severe, and global markets have reacted sharply, with stocks in just a few weeks down as much as seen in a typical multi-quarter bear market.
- Our macroeconomic outlook led us to relatively defensive portfolio positioning going into the crisis; now we are focused on balancing the continuing risks of the crisis with future opportunities.
- We believe there has been progress in creating conditions for a stock market bottom, but, the extent and duration of the economic impact, and in particular the labor market fallout, is still very uncertain.
- A balanced approach to risk management is warranted, in our view, as we transition through what is likely to prove a major economic inflection point.
- After initially increasing the portfolio’s already-defensive tilt as the COVID-19 outbreak began to spread outside Asia, we began shifting in late March to a more balanced mix of defensive and economically-sensitive allocations in anticipation of an eventual market bottom.
- We added allocations to U.S. Financials, Industrials, and Energy, which were among the sectors that had been hardest-hit by the initial COVID-19 market downturn, and we believe offered more attractive risk/return profiles going forward.
- At the same time, we reduced overweights of the relatively defensive U.S. Consumer Staples and Utilities sectors.
- We increased overall U.S. exposure with the addition of a small/mid-cap allocation, while reducing Western European exposure, which tilted international equity exposure more toward emerging Asia.
- U.S. Consumer Staples
- U.S. Financials
- U.S. Energy
- U.S. Consumer Discretionary
- Emerging Asia