Global Balanced portfolio outlook, positioning, and attribution as of 06/30/2023
June 30, 2023
- We continue to see late-cycle economic conditions in the U.S. and in other developed regions abroad, with ongoing deceleration in key leading economic data, despite continued strength in headline employment and personal consumption in the U.S.
- Our economic cycle analysis suggests that the delayed effects of monetary policy tightening, tightening lending standards, and the rolling over of the corporate profit cycle in the U.S. are all likely to be felt more acutely in coming quarters.
- In this evolving environment, we see significant risk to corporate earnings for the most economically sensitive parts of the markets.
- We expect earnings growth will continue to vary significantly across U.S. sectors in 2023, as is typical in the later stages off an economic cycle, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- Internationally, Europe has entered a technical recession, but we believe it still faces significant risks from monetary and fiscal tightening with a smaller savings cushion to support consumers than the U.S, and we also expect slowing growth to present headwinds for economically cyclical emerging markets, while developed Asia is a relative bright spot.
- Seeing reduced risk to fixed income returns and late economic cycle risks to equities, we maintain an overweight of fixed income in balanced portfolios.
- We are avoiding early-phase cyclical U.S. sectors and, instead, are emphasizing sectors that we expect will see less deterioration in margins and earnings growth as economic growth slows.
- We are overweight the late-phase, more defensive U.S. sectors including Health Care, Consumer Staples, and Utilities.
- We maintain allocations to the U.S. Information Technology, Communication Services, and Consumer Discretionary sectors, which we believe are attractive at this stage of the cycle given their lower revenue volatility and more secular-oriented growth profiles versus more cyclical sectors.
- We remain underweight to international equities, as a whole, including underweights of Europe and emerging markets, but we maintain an overweight of developed Asia, where we see the greatest potential for economic resilience abroad.
- Within fixed income allocations, we are emphasizing intermediate and longer-term securities that should benefit from declining interest rates, and we have moved to an overweight of Treasury exposure, which we believe could benefit amid a flight to perceived safe assets.
- Emerging Asia Equities
- U.S. Energy Equities
- U.S. Financials Equities
- Western Europe Equities
- U.S. Utilities Equities
- U.S. Consumer Staples Equities
- U.S. Health Care Equities
- Fixed Income