Global Conservative portfolio outlook, positioning, and attribution as of 3/31/2022
March 31, 2022
- We see continuing cyclical progression toward a healthy-but-slower-growth economic expansion, driven by a mix of consumer and business strength.
- Economic and geopolitical risks have increased over the past quarter, including elevated inflation, tightening monetary policy, and spiking oil prices tied to the Russian invasion of Ukraine, but we do not expect these issues to derail economic growth in 2022.
- We expect earnings growth to vary significantly across U.S. sectors in 2022, as is typical during economic transitions, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- Internationally, we believe the deceleration in global economic growth is likely to favor developed markets over emerging markets, but Europe faces distinct economic risks from the Ukraine invasion, given its dependence on Russian energy.
- In Fixed Income markets, we continue to see a relatively poor risk/return profile, particularly for Treasury bonds, which offer low absolute yields, but we see a low risk of default for corporate bonds, given the current strength of corporate profits and balance sheets.
- Given our outlook for continued expansion, we remain overweight equities, including an overweight of the U.S., where we have moved to an overweight of Information Technology and maintain an overweight to Communication Services, sectors which we expect will see less deceleration in revenue and earnings growth than more cyclical sectors.
- We have eliminated U.S. Industrials exposure, but maintain an allocation to U.S. Energy, while avoiding more defensive U.S. equity sectors such as Utilities and Consumer Staples.
- Internationally, we remain underweight Europe and Emerging Asia equities, but overweight Developed Asia, where we see greater near-term economic upside.
- Within fixed income, we have taken advantage of wider corporate spreads by shifting exposures from intermediate Treasury bonds to short-term high-yield credit, while also extending the duration of investment-grade corporate bond exposure, though we retain a shorter duration than the benchmark.
- U.S. Information Technology Equities
- Long-Term Fixed Income
- Europe Equities
- Emerging Asia Equities
- Investment Grade Corporate Bonds
- Treasury Securities
- North America ex-U.S. Equities
- U.S. Consumer Staples Equities