Teaming up to perform
As we approach the year’s halftime whistle, what has actually surprised us most is the relative lack of surprises.
Our global economic recovery thesis remains intact. Growth is on course to be 3.0%, with consensus forecasts in a very tight range. We have been right to overweight risky assets: global equities are up 6.4%, with 30-day realized market volatility now at its lowest level since 1996. Credit spreads have contracted, the euro has (finally!) begun to depreciate against the US dollar, and Brazil, our World Cup pick, topped its group.
At a glance
- Tactically, we are overweight US and Eurozone equities, and US high yield and investment grade credit.
- However, we reduce the size of our overweight position in US high yield, and cut emerging market USD-denominated sovereign bonds to underweight, after strong performance in both segments year-to-date.
- As we approach the year’s halftime whistle, the year has not been without its shocks. But what has actually surprised us most is the relative lack of surprises.
- We caution that the market calm does not lure investors into taking more risk than they can bear. Focus on a long-term strategic asset allocation with a tolerable level of risk is key.
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