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.
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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The Bloomberg Barclays Global Aggregate Corporate Index measures global investment grade, fixed-rate corporate debt.
The Bloomberg Barclays U.S. Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market.
The Citigroup World Government Bond Index (WGBI) measures the performance of fixed-rate, local currency, investment-grade sovereign bonds.
The JPMorgan Global High Yield Index is designed to mirror the investable universe of the U.S. dollar global high yield corporate debt market, including domestic and international issues.
The JPMorgan HY Corp. Total Return Index is a dollar-denominated index consisting of non-investment-grade corporate bonds, which are issued by both U.S. and non-U.S. companies.
The MSCI AC World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets.
The MSCI World Index is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed markets.
The MSCI Total Return Index measures the price performance of markets with the income from constituent dividend payments.
OppenheimerFunds is not undertaking to provide impartial investment advice or to provide advice in a fiduciary capacity.
Mutual funds and exchange traded funds are subject to market risk and volatility. Shares may gain or lose value. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, regulatory and geopolitical risks.
These views represent the opinions of the GMAG Team and are not intended as investment advice or to predict or depict performance of any investment. These views are as of the open of business on November 16, 2017 and are subject to change based on subsequent developments.