Multi-Asset portfolio positioning intra-quarter update as of 07/10/2025

We continue to see late-cycle economic conditions in the U.S. with an ongoing deceleration in activity. We also see a path to an extension of the cycle as the economy acclimates to uncertainty. While retaining a balance of defensive and economically sensitive U.S. exposures, we have refined the portfolio’s more defensive sector allocations as we see opportunities and risks evolving.

July 10, 2025

ACTIONS and OVERVIEW:

Reduced U.S. Health Care equity sector exposure

• Trimmed existing Health Care sector ETF holding

Added new U.S. Utilities equity sector exposure

• Added new Utilities sector ETF holding

Portfolio rebalance

Late-cycle economic conditions persist in the U.S., in our view,  and a mix of protectionist trade policies, reduced private-sector hiring, and slower household wealth gains that could drive a higher savings rate may weigh on economic growth this year.  Additionally, even after reductions to the original tariff proposals, the U.S. is still expected to face its highest average effective tariff rate in nearly a century—an environment that, in our view, presents risks to both inflation and growth.

We remain comfortable with our overall portfolio positioning, including an overweight of defensive late-phase U.S. equity sectors and select exposure to more economically sensitive areas.  After the sharp market rally in Q2, however, we have adjusted our mix of defensive U.S. sector exposures to reflect evolving risks and opportunities in our outlook.  Specifically, we reduced our U.S. Health Care equities overweight amid ongoing policy uncertainty and added U.S. Utilities exposure, where we see a healthy and reliable earnings growth profile.

We also have rebalanced the portfolio. This included trimming U.S. Information Technology sector exposure back to its target weight after it led the market off April market lows, which aligned with a prior rebalance when we added to the sector.  The rebalance does not reflect a change in our views on the sector, but rather normal maintenance of our desired exposure.

UPDATE DETAIL:

Reduced U.S. Health Care equity sector exposure

• In the current environment, uncertainty around the imposition of pharmaceutical tariffs and the more visible headwinds associated with ongoing drug pricing reforms and Medicare/Medicaid policy changes are both likely to impact earnings visibility in the near-to-intermediate term.
• Regulatory uncertainty has weighed on sentiment recently, but we see sweeping change for the sector as unlikely.
• Remarkably stable multi-decade EPS trends and strong earnings visibility typically make Health Care a defensive sector, and we believe the sector remains likely to offer downside protection in uncertain market environments—a key reason we retain a reduced overweight of the sector.
• The sector continues to trade at an attractive relative valuation, in our view, and we expect healthy aggregate health care spending growth over the next few years will offer a supportive backdrop for Health Care companies.

Added new U.S. Utilities equity sector exposure

• We view the U.S. Utilities sector as increasingly attractive amid continued progress in the economic cycle.
• The sector’s stable revenues and earnings provide insulation, in our view, from macroeconomic risks that may emerge in a late-cycle environment.
• Utilities companies are seeing accelerating power demand from data centers and digital infrastructure, which we expect can support high-single-digit earnings grow through 2027, which is above its average long-run EPS growth rate.
• Meanwhile, the sector trades for a multiple of about 18x forward EPS, representing a 20% discount to the market despite similar near-term earnings growth potential.