Global Conservative portfolio positioning intra-quarter update as of 11/20/2025

As the U.S. economy has been in a late-cycle expansion since early 2023, narrow areas within U.S. mid-phase sectors have sharply outpaced global markets. Tied to elevated investor expectations, we have trimmed these exposures and added to U.S. sectors where we see underappreciated opportunity.

November 20, 2025

ACTIONS and OVERVIEW:

Reduced U.S. mid-phase equity sector exposure

• Trimmed existing Info. Tech./Comm. Services ETF holding
• Trimmed existing Consumer Discretionary ETF holding

Added to U.S. Biotech industry/Health Care equity exposure

• Added new Biotechnology industry ETF holding

Added to U.S. Financials equity sector exposure

• Added to existing Financials sector ETF holding

Investor sentiment, valuations, and expectations for AI-related fundamentals are all elevated, but the unusual degree of labor market slowdown YTD in 2025 warrants caution, in our view.  We believe a backdrop with slowing income growth and low labor demand is unlikely to lead to stronger consumption, and we have reduced U.S. Consumer Discretionary equity sector exposure.  We also expect ongoing market volatility as investors gain more information around AI adoption and monetization, and we have reduced AI-related U.S. Information Technology and Communication Services sector exposure.

In this evolving macro and market landscape, we are adding to U.S. Health Care exposure in the Biotechnology industry, where challenging conditions of recent years appear to be easing.  We are also adding to U.S. Financials sector exposure, where we see ongoing macroeconomic tailwinds.  We believe that rising Health Care sector M&A activity will benefit Biotech, and that capital markets activity more broadly can benefit the Financials sector.

UPDATE DETAIL:

Reduced U.S. mid-phase equity sector exposure

• Information Technology and Communication Services have posted historic relative out-performance over the last 6 months and led narrow markets for most of the last 3 years.
• Assumptions supporting lofty AI stock valuations seem optimistic to us, given uncertainty about AI innovation and monetization—e.g., exponential AI demand growth forecasts have driven sharp increases in AI capex plans that should eat into free cash flow (FCF), yet analyst estimates imply a notable acceleration of FCF for many large AI firms.
• AI-related mega-cap Consumer Discretionary companies face some of the same growth and valuation risks we see for Information Technology and Communication Services.
• Consumer Discretionary companies also face ongoing risks to margins from tariffs, while softness in labor demand and market volatility could slow consumption growth.

Added to U.S. Biotech industry/Health Care equity exposure

• Large-cap Pharma and Biotech companies face key patent expirations later this decade, which could drive M&A to refill product pipelines targeting earlier-stage Biotech firms.
• We believe reduced policy uncertainty for Health Care has the potential to help lift depressed valuation multiples and support robust fundamental targets of Biotech firms.
• The Biotech industry historically tends to be very sensitive to interest rates and outperform during rate-cutting cycles, and it currently trades at attractive valuations, in our view.

Added to U.S. Financials equity sector exposure

• Financials underperformance since we trimmed exposure in April has lowered the sector’s relative valuations to mid-2024 levels, yet fundamentals remain healthy, in our view.
• We believe Banks should benefit from further yield curve steepening, while continued economic expansion and Fed rate cuts should support sector fundamentals more broadly.
• The Financials sector historically tends to outperform the broad market when mid-phase sectors underperform, which seems likely if sector leadership broadens as we expect.