Global Equity 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:

Increased allocation to U.S. Financials sector

• Added to existing U.S. Financials sector ETF holding

Selectively increased U.S. Information Technology allocation

• Added new U.S. Software industry ETF holding

Eliminated U.S. Utilities and Real Estate sector allocations

• Sold U.S. Utilities sector ETF position
• Sold U.S. Real Estate sector ETF position

Reasserted U.S. equity overweight

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

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 policies of the new administration could present headwinds to growth, we believe the balance of policy and sentiment impacts on the economy is likely to skew in favor of continued growth and a stronger dollar within our typical 6-to-18-month investment horizon.

UPDATE DETAIL:

Increased allocation to U.S. Financials sector

• The potential for continued economic growth, along with signs of an improving credit backdrop, an ongoing rebound in capital markets activity, and improved balance sheet strength all increase our near-term outlook for Financials.
• The incoming administration may usher in a more favorable regulatory regime, which could further boost investor sentiment in certain areas of Financials, while potential corporate tax cuts should be particularly beneficial for the domestically tilted Financials sector, in our view.

Selectively increased U.S. Information Technology allocation

• Software companies typically have relatively predictable revenue streams with high margins and free cash flow that we see as appealing versus other Tech. industries amid policy uncertainty, particularly with respect to tariffs.
• We believe a potentially friendlier business climate on the heels of the 2024 election could support enhanced technological adoption among small-and-medium sized businesses, which could drive a Software industry earnings growth acceleration over the course of 2025.

Eliminated U.S. Utilities and Real Estate sector allocations

• The U.S. Utilities and Real Estate sectors have experienced significant valuation increases over the past year, which we believe reduces their potential for outperformance ahead given their relatively low 2025 earnings growth projections.
• Utilities and Real Estate typically benefit from falling interest rates, and we see reduced downward pressure on interest rates, partly due to the potential ongoing economic growth, wider deficits, and fading disinflationary forces.

Reasserted U.S. equity overweight

• 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.