Global Balanced 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.
- We anticipate longer-term U.S. interest rates are likely to rise from extremely low current levels as uncertainty eases amid eventual economic recovery, driven in part by significant monetary stimulus.
- 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 COVID-19 began to spread, 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 equities, and we reduced overweights of U.S. Consumer Staples and Utilities equities.
- We increased overall U.S. equity exposure with the addition of a small/mid-cap allocation, while reducing Western European equity exposure, which tilted international equity exposure more toward emerging Asia.
- In the fixed-income allocation, we reduced duration after interest rates declined, but maintain an overweight of investment grade corporate securities.
- U.S. Consumer Staples Equities
- U.S. Financials Equities
- U.S. Energy Equities
- Investment Grade Corporate Bonds
- U.S. Treasury Securities
- Emerging Asia Equities