Global Conservative portfolio outlook, positioning, and attribution as of 3/31/2021
March 31, 2021
- We expect the global economic recovery to continue in 2021, amid continued U.S. consumer strength and business investment as COVID-19 vaccinations help release pent-up demand in certain parts of the economy.
- We anticipate positive equity market returns this year as rising earnings expectations for cyclical stocks should offset a likely decline in valuation multiples, which is typical early in a cycle.
- Internationally, European economic growth is likely, in our view, to be materially lower than that of the U.S. in Q1 due to renewed lockdown measures, while economic data has shown that Emerging Asia leads other regions in its economic recovery, which should support positive GDP and earnings growth in 2021.
- Even though economic and market risks remain, including potential for higher interest rates and higher taxes in the U.S., we believe the global economic recovery will continue to progress and an overweight of economically-sensitive sectors is appropriate.
- We anticipate intermediate and longer-term interest rates could continue to rise moderately in 2021, driven by rising real yields and inflation expectations, though we believe core inflation is likely to remain at moderate levels consistent with the previous economic cycle given ongoing slack in the economy.
- Sector allocation will be increasingly important in the U.S. in 2021, in our view, as the ongoing recovery and expansion drive a rebound in earnings for cyclical sectors and areas of the economy hardest hit by the pandemic, such as retail, travel, and leisure.
- Given our outlook for the global economic recovery to continue in 2021, as well as the prospective interest rate and political environments, we have increased the strategy’s equity allocation and reduced the fixed income allocation.
- Over the past year, we have reduced exposure to less economically-sensitive equity sectors such as large-cap U.S. Consumer Staples and Utilities.
- We maintain an overweight of Emerging Asian equities, which provides favorable sector exposure with positive secular trends; we maintain an underweight to Europe and Japan.
- Within the fixed-income allocation, we maintain an overweight to investment-grade corporate bonds and a lower average duration than the benchmark to manage interest rate risk.
- U.S. Large-Cap Energy Equities
- Long-Term Bonds
- Fixed-Income Allocation
- Intermediate-Term Bonds
- Investment-Grade Corporate Bonds
- U.S. Treasury Securities