Global Conservative portfolio positioning intra-quarter update as of 11/12/2024

The economic backdrop continues to evolve, and while the U.S. election results may introduce both headwinds and tailwinds for the economy and markets, we believe near-term impacts skew toward an extension of the economic cycle. We have made select portfolio changes where we see potential for incremental outperformance or risk control.

November 12, 2024

ACTIONS and OVERVIEW:

Adjusted U.S. equity sector exposures

• Added to existing U.S. Financials sector ETF position
• Added new U.S. Software industry ETF position
• Eliminated U.S. Utilities sector ETF exposure
• Eliminated U.S. Real Estate sector ETF exposure

Reasserted U.S. overweight in equity allocation

• Trimmed existing broad international equity ETF position
• Proportionally increased targeted U.S. equity positions

Increased equity allocation/adjusted fixed income allocations

• Eliminated fixed income overweight/adjusted equity and fixed income target weights proportionally
• Trimmed existing intermediate/long-term Treasury ETFs
• Added to existing short-term corporate bond ETF position

Portfolio rebalance

We continue to believe the U.S. is in a mature economic cycle, with a mix of positive developments like healthy personal income and spending, but also challenges like a softening labor market. We believe the Fed remains on track for near-term rate cuts, which could lead to a re-steepening of the yield curve amid continued economic growth.  U.S. election results reduced near-term market uncertainty and, while some potential policy shifts could present headwinds to growth, we see the balance of policy and sentiment impacts on the economy as likely to skew toward continued growth and dollar strength within our typical 6-to-18-month investment horizon.

UPDATE DETAIL:

Adjusted U.S. equity sector exposures

• Increased U.S. Financials sector allocation, which we believe benefits from the potential for continued economic growth, tax cuts, and a more favorable regulatory regime tied to the recent election results; meanwhile, we see an improving credit backdrop, an ongoing rebound in capital markets activity, and improved balance sheet strength.
• Selectively increased U.S. Information Technology exposure with an allocation to the Software industry, which is characterized by relatively predictable revenue streams with high margins and free cash flow that we see as appealing amid policy uncertainty, particularly with respect to tariffs.
• Eliminated exposure to the U.S. Utilities and Real Estate sectors, which both experienced valuation increases over the past year that we believe reduces their outperformance potential; and which typically benefit from falling interest rates, as we see reduced downward pressure on interest rates tied to the potential ongoing economic growth, wider deficits, and fading disinflationary forces.

Reasserted U.S. overweight in equity allocation

• U.S. economic growth remains a positive outlier globally, and the U.S. election results could support ongoing growth, via fiscal policies like extended tax cuts, and dollar strength.
• While potential tariffs could be a headwind for the U.S., we believe they would have greater negative impacts on growth for export-oriented economies outside the U.S.

Increased equity allocation/adjusted fixed income allocations

• Increased equity exposure is warranted across favored equity segments, in our view, given the prospect of an extension of economic growth in the U.S.
• Reduced fixed income exposure with greater emphasis of short-term corporate securities and reduced overall duration is warranted, in our view, by the potential for continued economic growth, reduced downward pressure on longer-term interest rates, and a re-steepening of the yield curve.