We continue to see the broad-based global expansion that we have highlighted for the last couple of months. Fundamentals remain positive across all major regions as our global leading economic indicators continue to be in the expansion regime. This view is confirmed by our market sentiment and momentum indicators, and by the very low level of stock market volatility. In short, all of our key near-term measures remain positive.

Given that view, we believe equities are likely to continue to offer the best return opportunities overall, and have decided to increase our equity allocation, while reducing our allocation to credit, specifically loans.

This is consistent with our research on macro regimes. During the expansion regime, we find that equities can continue to deliver greater returns than credit or other assets, given their exposure to economic growth and potential for multiple expansion. In contrast, credit offers less opportunity for further price appreciation during the expansion regime, and returns will largely come from carry — the extra yield they typically offer over government bonds.

increasing our equity exposure

Within equities, we continue to prefer European and emerging market equities versus the U.S., given their more attractive valuations. Otherwise our positions remain similar to last month, with our most significant overweights in emerging market debt and currencies, and a neutral position in developed bonds — broadly diversified across the major regions.

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