Global Equity portfolio positioning intra-quarter update as of 08/15/2025

We still see late-cycle economic conditions in the U.S., as various factors have weighed on economic growth this year. We also see countervailing forces that could help support growth. We retain a mix of defensive and economically sensitive exposures in the U.S. but have broadened tech-related allocations where we see positive secular trends.

August 15, 2025

ACTIONS and OVERVIEW:

Adjusted U.S. technology-related exposure

• Eliminated a Software industry ETF position
• Added new Info. Tech. and Comm. Services ETF position

Reduced U.S. Health Care sector exposure

• Trimmed existing Health Care sector ETF holding

Portfolio rebalance

Protectionist trade policies, reduced private-sector hiring, and sluggish disposable income growth have all weighed on U.S. economic growth this year.  The U.S. now faces its highest effective tariff rate in nearly a century, which we believe poses risks to growth and inflation, but we also believe aspects of the recently passed One Big Beautiful Bill Act present a near-term impulse to growth that could offset some growth headwinds over our 6-18 month investment horizon.

We remain comfortable with our late-cycle macroeconomic outlook and overall U.S. equity positioning, which balances an overweight of defensive late-phase sectors with select economically sensitive exposure.  However, seeing continued positive secular tailwinds for U.S. Information Technology and Communication Services, we have adjusted our allocation to these sectors to broaden our tech and tech-adjacent exposure.  We have also modestly reduced our overweight of U.S. Health Care in support of this refined tech-related allocation.

UPDATE DETAIL:

Adjusted U.S. technology-related exposure

• We believe reducing our emphasis of U.S. Software exposure in favor of broader tech-related exposure was warranted given reduced trade uncertainty and greater visibility into sustained secular growth in AI infrastructure.
• Year to date, AI infrastructure capex has remained very strong, and recent reports suggest upside to capex budgets from hyperscalers and cloud services providers with further anticipated capex growth in 2026, which we believe should benefit U.S. Semiconductors, Tech Hardware, Software, and Interactive Media & Services industry companies.
• While we do expect the U.S. Software industry will also see lasting demand and profitability benefits from AI adoption and implementation, Software also faces disruption risks from AI, which could persist over the next 12-18 months.
• Software also carries higher valuations than other mid-phase U.S. industry exposures, and this adjustment reduced the average valuation of our mid-phase sector allocations.

Reduced U.S. Health Care sector exposure

• We believe a modest reduction in our overweight of the U.S. Health Care sector was warranted by uncertainty over potential pharmaceutical tariffs as well as headwinds associated with ongoing drug pricing reforms and Medicare/Medicaid policy changes, which we see reducing the sector’s near-to-intermediate term earnings visibility.
• We retain a reduced overweight of U.S. Health Care, which has exhibited remarkably stable EPS trends over multiple decades and, in our view, can still provide downside protection in uncertain market environments.
• While regulatory uncertainty has weighed on sentiment in recent months, we believe sweeping change for the U.S. Health Care sector is unlikely.
• The sector continues to trade at an attractive relative valuation, in our view, and our analysis suggests the pace of aggregate health care spending should remain supportive for U.S. Health Care companies over the next few years.