Current Views

As of 30 November 2016

Overall Risk Position

We present our views on asset allocation, which we hope help investors see through market volatility to potential opportunities ahead. As we were at the beginning of the year, we are modestly overweight risk. Given our base case of modest global growth aided by a fiscal boost in the U.S., we believe positive returns can still be earned via targeted risk-taking. We are maintaining ample dry powder and remain focused on relative value and bottom-up opportunities.

As of 30 November 2016


We have pared our modest underweight and are now neutral equities, with a continued focus on country and sector selection. While valuations are the fullest in the U.S., the third-quarter earnings seasons have been better than expected in the U.S. and Europe. Additionally, potential changes to U.S. tax policy and regulation may provide further support to domestically oriented U.S. corporations. We have therefore increased our exposure to U.S. stocks with a bias toward small capitalization stocks. In contrast, we’ve reduced our exposure to Japanese equities, as consensus earnings expectations look too ambitious versus our own forecasts. Finally, we’ve cut our EM overweight down to neutral given the heightened risk of protectionist and anti-trade policies in the U.S.

As of 30 November 2016


With the fairly sharp pick-up in yields, we’ve moderated our underweight to high quality government bonds. In the U.S., we prefer TIPS. In Europe, we see better value within nominal bonds in German Bunds and are overweight, particularly relative to France, given relatively tight spreads and a full political calendar ahead.

Credit Dial
As of 30 November 2016


Income generation still remains the core focus of our multi-asset portfolios. We continue to believe high quality bonds offer an attractive means to escape negative-yielding assets without taking excessive risk at a time when we believe recession probabilities are still fairly low. In particular, our overweight to credit is focused on non-agency mortgage-backed securities, which will likely benefit from an ongoing recovery in the housing market and remain well-insulated from many global risks hanging over financial markets, leading to low-to-modest correlations with other spread sectors. We also have added senior, short weighted-average-life collateralized loan obligations (CLOs) as another source of high quality yield.

Real Assets
As of 30 November 2016

Real Assets

We maintain an overweight to real assets, with a focus on U.S. TIPS. Inflation expectations have risen recently, yet value remains, as we expect inflation is on course to reach and possibly exceed the Fed’s 2% target over the coming months. More importantly, given the outlook we face with fiscal expansion and protectionism, TIPS offer the benefits of inflation protection with portfolio diversification characteristics similar to nominal Treasuries. Some are beginning to view them as the new “risk-free” asset. Finally, we have reduced our overweight in REITs, given broadly fair valuations and their sensitivity to rising rates.

As of 30 November 2016


We continue to favor the U.S. dollar against a basket of Asian currencies – a region that has benefited inordinately from global trade. We also have a modest underweight in the euro, anticipating continued dovish monetary policy from the European Central Bank. We are holding small tactical positions in some of the higher-carry “commodity currencies” given the excessive cheapening seen post elections.

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Secular Outlook

Good investment opportunities remain, but investors must be compensated for growing and heightened uncertainty and risks of policy exhaustion.

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Financial Advisors
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A Word About Risk: Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. Investing in foreign denominated and/or domiciled securities may involve heightened risk due to currency fluctuations, and economic and political risks, which may be enhanced in emerging markets. Commodities contain heightened risk including market, political, regulatory, and natural conditions, and may not be suitable for all investors. Mortgage and asset-backed securities may be sensitive to changes in interest rates, subject to early repayment risk, and their value may fluctuate in response to the market’s perception of issuer creditworthiness; while generally supported by some form of government or private guarantee there is no assurance that private guarantors will meet their obligations Inflation-linked bonds (ILBs) issued by a government are fixed-income securities whose principal value is periodically adjusted according to the rate of inflation; ILBs decline in value when real interest rates rise. Equities may decline in value due to both real and perceived general market, economic, and industry conditions.

Statements concerning financial market trends or portfolio strategies are based on current market conditions, which will fluctuate. There is no guarantee that these investment strategies will work under all market conditions or are suitable for all investors and each investor should evaluate their ability to invest for the long term, especially during periods of downturn in the market. Outlook and strategies are subject to change without notice.

Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be interpreted as investment advice, as an offer or solicitation, nor as the purchase or sale of any financial instrument. Forecasts and estimates have certain inherent limitations, and unlike an actual performance record, do not reflect actual trading, liquidity constraints, fees, and/or other costs. In addition, references to future results should not be construed as an estimate or promise of results that a client portfolio may achieve.