Recent data from our leading economic indicators show that growth is reaccelerating across many regions, while market volatility remains very low. Against this backdrop, we are increasing our overall risk posture to a modest overweight, particularly by adding to our positions in emerging market equities, where economies are back in the recovery regime and valuations remain attractive.

We are also maintaining an overweight in European equities, which remain in expansion territory and offer attractive valuations. We remain underweight U.S. equities.

Emerging Market Debt and Currencies

Continuing the emerging markets theme, we are maintaining our overweight in emerging market local bonds. While emerging market debt has been a strong performer this year, we believe the case for further performance remains intact. Emerging market debt continues to offer higher nominal and real yields than developed markets, and inflation remains stable and subdued. Our overall duration exposure to developed markets remains neutral. In credit, we prefer loans to high yield, given their higher quality and attractive spreads.

In currencies, we are also increasing our overweight to emerging markets, where yields and valuations remain attractive relative to the U.S. dollar and most other developed currencies. We have also added to our exposure to Japanese yen as a means of balancing risk in the portfolio, and are underweight the U.S. dollar.

Some Relief from Event-Linked Bond Pressure

Finally, I would like to address recent developments in another income sector: event-linked bonds. We hold event-linked bonds across several portfolios because they offer strong potential for diversified income. With the recent string of natural disasters ̶ notably the earthquake in Mexico and Hurricanes Harvey and Irma ̶ this market has been under considerable stress. In particular, on September 8, the Swiss Re Global Cat Bond Index was down over 15% from the prior week on fears that Irma would directly hit Miami with Category 4/5 winds.

However, damage estimates have dropped considerably from those initial fears after Irma veered west of Miami and weakened from its peak strength. To date, the index has rebounded nearly 11% from its lows.

We will keep you informed of further developments in this space, and we hold in our thoughts all of the people who have been impacted by Harvey, Irma, and the earthquake in Mexico.

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The Swiss Re Global Cat Bond Index tracks the aggregate performance of all U.S. dollar and euro denominated cat bonds, capturing all ratings, perils and triggers. The Index seeks to hedge out the euro risk at the inception of each bond. The index is based on Swiss Re pricing indications only. Indices are unmanaged and cannot be purchased directly by investors. Index performance is shown for illustrative purposes only and does not predict or depict performance of the strategy. Past performance does not guarantee future results.