Global Conservative portfolio outlook, positioning, and attribution as of 6/30/2021
June 30, 2021
- We expect the rapid global economic recovery to shift to a more normalized economic expansion, led by a surge in consumer spending and business investment alongside the global vaccine rollout and declining coronavirus cases.
- We anticipate continued positive equity returns in the coming quarters, as earnings growth should offset valuation compression, which is typical in a recovery, but we believe sector selection will be crucial in the period ahead.
- Internationally, the prospects for Europe’s economic recovery have improved materially as the EU vaccination rollout accelerated in Q2, and we believe European GDP growth is likely to rebound sharply in the second half of 2021 as lockdown measures are eased.
- Even though economic and market risks remain, including potential for higher interest rates and a deceleration in growth rates, we believe the global economic recovery will continue to progress and an overweight of select economically-sensitive areas of the market is appropriate.
- The strong economic and labor market rebounds should quicken, in our view, the timeline for monetary policy normalization, which could lead to higher interest rates in the coming quarters.
- In Q2, we began to make adjustments to and within more economically-sensitive allocations in anticipation of a shift from rapid economic recovery to sustained expansion.
- In U.S. large-cap equity allocations, we have increased our exposure to the Information Technology and Financials sectors, which we believe will benefit from positive secular tailwinds and a potential rise in interest rates, respectively.
- We reduced exposure to the U.S. Industrials sector, which may see less pent-up demand going forward than in prior cyclical recoveries, and also eliminated a U.S. small-caps allocation.
- We remain underweight international equities overall, but have increased our exposure to Europe and maintain an overweight of Emerging Asian equities.
- Given our positive economic outlook and the prospect of a continued rise in interest rates, we maintain a modest overweight of equities and underweight of fixed-income, and 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.
- Investment-Grade Corporate Bonds
- U.S. Treasury Securities
- U.S. Small-Cap Equities
- U.S. Large-Cap Financials Equities
- Long-Term Fixed-Income Securities