Global Conservative portfolio outlook, positioning, and attribution as of 6/30/2022
June 30, 2022
- The U.S. and global economic cycles continue to progress rapidly. We expect the U.S. economic expansion to extend into 2023, but we have seen, as anticipated, signs of slowing growth in economic data.
- We believe the Federal Reserve’s recent shift toward more aggressive monetary tightening has exacerbated risks that the economic cycle could progress toward a late-phase slowdown.
- In this evolving environment, we now see increased risk to corporate earnings and, more broadly, to the performance of particularly economically sensitive parts of the markets.
- Internationally, we believe the deceleration in global economic growth is likely to favor developed markets over emerging markets, but Europe faces distinct economic risks related to inflation and slower trade and manufacturing activity.
- While risks to equities have increased, risks to fixed income have diminished, in our view, following the sharp rise in interest rates this year, as slowing economic growth and a likely easing of inflation should reduce upward pressure on intermediate and longer-term interest rates, and a Fed-induced slowdown could ultimately push down longer-term interest rates down.
- We have moved to a significant underweight of early-phase U.S. sectors, eliminating Financials exposure and continuing to avoid Industrials, Materials, and Real Estate.
- We have increased our overweight of the mid-phase U.S. Information Technology and Communication Services sectors, which we believe will see less deceleration in revenue and earnings growth than more cyclical sectors, and increased exposure to late-phase, defensive U.S. sectors by adding to our Health Care overweight and adding a new Utilities allocation.
- We remain underweight international equities, and especially emerging markets, and we have continued to shift developed market exposure from Europe to Developed Asia, where we see positive factors like pent up recovery potential and improving trade.
- Given shifting risk profiles, we have added to fixed income and eliminated an overweight of equities. Within fixed income allocations, we have lengthened duration (increased interest rate sensitivity), reduced our overweight to corporate credit, and added to Treasury exposure.
- U.S. Health Care Equities
- Long-Term Fixed Income
- Short-Term Fixed Income
- Investment Grade Corporate Bonds
- Treasury Securities
- U.S. Consumer Staples Equities