Multi-Asset portfolio outlook, positioning, and attribution as of 12/31/2025

December 31, 2025

Outlook:

• The global economic cycle continues to exhibit signs of being at an advanced stage, particularly within developed economies, including the U.S., where GDP appears to have stabilized in the back half of 2025.
• We see potential for a temporary reacceleration in U.S. economic growth in early 2026, tied to certain stimulative policies, including extension and expansion of tax cuts and reduced regulation, which could support a broadening out of market leadership.
• We also see risks, however, from market concentration, valuations, and lofty expectations for AI-driven growth.
• The U.S. consumer remains on solid footing, but softer labor demand and low consumer expectations could hinder spending growth.
• Private fixed investment has supported continued economic growth with continued AI infrastructure capex, which, in turn, has supported tech-focused areas of the economy, but we still see headwinds for more traditional business investment.
• We expect the Federal Reserve is likely to cut interest rates 2-3 times in 2026, which should help further steepen the yield curve, as resilient economic growth in the intermediate term and gradual disinflation could limit the downside to longer-term interest rates.
• Internationally, most major economies still face late-cycle challenges and manufacturing headwinds, including lingering risk from U.S. trade policy.
• We see opportunity in both Developed and EM Asia tied, in part, to a stabilizing credit and property market backdrop in China, a pivot to more stimulative monetary policy among the region’s central banks, and renewed growth in high-tech manufacturing.

Positioning:

• In our view, the evolving late-cycle economic environment, elevated policy uncertainty, and rich valuations warrant a balance of defensive and select economically sensitive sector exposures.
• In large-cap U.S. equities, we are avoiding several most cyclical, early-phase sectors, but have increased Financials exposure and trimmed exposure to AI/tech-related mid-phase sectors, and we are overweight the late-phase, defensive U.S. sectors.
• We have also shifted some of the U.S. equity exposure from large-cap to small-cap, which we see as an increasingly attractive-yet-underappreciated part of the U.S. market.
• We remain underweight international equities, overall, but maintain an overweight of EM Asia, amid signs of economic improvement, and a modest overweight of Developed Asia.
• We maintain a modest underweight of fixed income, with emphasis on intermediate and longer-term Treasury exposure as well as shorter-term corporate exposure where we see less risk from a potential widening of credit spreads.
• Given our outlook for a late-cycle environment, we continue to avoid the most economically sensitive real asset exposures, like real estate and broad commodities, and maintain moderate real asset exposure with a focus on gold and a small allocation to energy infrastructure.

Q4 Attribution