In February of 2016 I had a series of meetings with very nervous investors. Equity markets were down by more than 10%, high-yield credit spreads were near recession levels, and oil dropped to below $30 per barrel. The questions I was hearing were, “Are we okay? Are we heading into a recession? Is this the beginning of a prolonged market decline?”

It was interesting to reflect on that period this month as we experienced the first 10% drop in equities since then, and I couldn’t help but note that people’s reactions seemed much more muted this time.

And I think they are right. The global economy is in a much better place today than two years ago. We have synchronized economic growth around the world. Our proprietary indicators for growth and market sentiment remain positive, and our risk indicators are barely in cautionary territory.

Our Portfolio Positioning

For the near term, we expect that equities will continue to offer the best investment opportunity, and we maintain our overweight position. Within equities, we prefer European and emerging market equities versus the United States, given their more attractive valuations and relatively younger economic expansions.

Outside of equities, we maintain our overweight in emerging market debt, where real yields remain significantly positive. We are underweight duration in developed market bonds, with a relative preference for US, UK and Swedish bonds over Australia, Canada, and Europe.

Among currencies, we are underweight the U.S. dollar, and overweight emerging markets currencies and select developed currencies, including the euro and the Japanese yen.

In the midst of the volatility, we decided to close our position in oil as a risk-management measure. Our fundamental view remains positive, so we may look for opportunities to reestablish exposure as volatility declines.

However, despite our positive near term view, the recent bout of volatility is a good reminder that markets are risky. Valuations are high across nearly all asset classes, and central bank policy is likely to tighten over the course of the year. We are in the latter innings of the cycle, and, as our CIO Krishna Memani highlighted last week, fiscal stimulus in the United States could hasten the cycle’s end. In the meantime, we remain vigilant, looking for relative value opportunities and ways to enhance diversification in the portfolio.