Signs of market stress continued to abate over the last month: The price of oil rose to about $45 a barrel, commodities are up over 7% quarter-to-date, high yield spreads fell from 6.5% to 6.0%, and trailing equity volatility declined to its lowest level since last August’s sell-off. That said, global equities are roughly flat and growth remains modest across the United States, Europe and Japan, trends that offer evidence for our view that we remain in a “slowdown” regime.

Overall, there are very few changes in our portfolio views for a 60/40 investor since last month:

  • Underweight total equity by about 5%, given the slowdown regime in developed economies and relatively full valuations;
  • Overweight emerging markets equities versus developed equities by about 7%, an increase of about 5% from last month;
  • Overweight high yield credit by 8%, as a way to improve risk-adjusted returns versus equities;
  • Long duration by about 0.5 years, for risk mitigation;
  • Neutral the U.S. dollar.

The only significant change in our asset allocation versus last month is our increased exposure to emerging markets equities, with that change being driven by improving cyclical conditions and attractive valuations. My colleague, Alessio de Longis, who heads our macro strategy team, will publish a blog shortly which goes into greater depth on the opportunities and risks we see in emerging markets today.

Visit our Global Multi-Asset Group webpage for additional insights about asset allocation and multi-asset investing.