Multi-Asset portfolio outlook, positioning, and attribution as of 09/30/2023
September 30, 2023
- Resilience in some areas of the U.S. economy may have pushed out the near-term risk of recession, but multiple indicators still signal heightened risks for the economy.
- We believe the lagged impacts of various factors – including the sharpest set of Fed rate hikes since the 1980’s, tighter lending standards, and decelerating corporate profits growth – have yet to be fully felt and pose material headwinds to the economy in the coming quarters.
- Consumers have remained resilient so far this year, with respectable income and spending growth, but we see various risks to both income and spending ahead, including the resumption of student loan payments and depletion of savings cushions built up during the pandemic.
- In this evolving environment, we see significant risk to corporate earnings for the most economically sensitive parts of the markets.
- Internationally, Europe faces ongoing inflation and tight monetary policy while China continues to struggle with growth amid its post-lockdown reopening, but we believe Japan remains an international bright spot, with expansionary GDP growth, moderate inflation, and accommodative monetary policy.
- Given our outlook for late-cycle economic conditions with expectations for weaker economic growth ahead, we are underweighting or avoiding the most economically sensitive assets, such as equities, real estate, and broad commodities.
- We do see opportunity for diversification and appreciation from exposure to gold in the current inflationary environment as well as from select infrastructure exposure.
- Within equities, we are avoiding early-phase cyclical U.S. sectors and, instead, are emphasizing sectors that we expect will see less earnings deceleration and margin compression as economic growth slows, and we maintain overweights to late-phase, defensive U.S. sector exposures including Health Care, Consumer Staples, and Utilities.
- We remain underweight to international equities, as a whole, including underweights of Europe and emerging markets, but we maintain an overweight of developed Asia, where we see the greatest potential for economic resilience abroad.
- Within fixed income allocations, we are emphasizing intermediate and longer-term securities that should benefit from declining interest rates, and we have increased our overweight of Treasury exposure, which we believe could benefit amid a flight to perceived safe assets.
- Real Assets
- Japanese Equities
- U.S> Real Estate Equities
- Long-Term Fixed Income Securities
- U.S. Utilities Equities
- U.S. Energy Equities