Asset Allocation Committee Strategy

Asset Allocation Committee Strategy

Executive Summary

The T. Rowe Price Asset Allocation Committee evaluates the relative attractiveness of major asset classes over a 6- to 18-month time horizon. These positions are currently reflected across our suite of asset allocation portfolios, accounting for approximately $319 billion in assets under management as of March 31, 2019.*

March 2019 Positions

  • All Asset Classes
  • Equities
  • Fixed Income
Current Position (as of March 2019)
Bonds
Neutral
Stocks

Bond valuations are more reflective of persistent uncertainty, weakening economic data, and the late stage of the economic cycle.

The underlying fundamentals for equities are reasonable, but the aging economic cycle, declining earnings expectations, and unresolved trade tensions remain concerns. Bond yields are constrained with modest inflation and the Federal Reserve on hold.

Equities

U.S.
Neutral
International

International equities have attractive valuations relative to history, but slowing global growth and trade risks present headwinds.

Equities in international markets are more appealing, but key regions face challenges due to slowing global growth and unresolved trade tensions. While the U.S. market is less vulnerable to fading growth, the deteriorating earnings outlook and late-cycle concerns pose risks.

Developed
Neutral
Emerging

Emerging markets equities are attractive, supported by improving sentiment.

A more dovish Fed, softer U.S. dollar expectations, stimulus measures in China, and easing trade tensions may be supportive for emerging markets. Many developing countries are less reliant on U.S. dollar funding than in the past, reducing the risk of a financial crisis.

Global Equity
Neutral
Real Assets

Declining global growth and oversupply could weigh on energy and commodity prices.

Excess supply due to efficient oil and gas production and moderating global growth make long-term prospects for energy and commodity prices challenging. Real estate investment trusts are buoyed by healthy fundamentals and a stable outlook for interest rates.

Large-Cap
Neutral
Small-Cap

U.S. small-cap equities are attractive and less susceptible to trade and global growth concerns.

Despite recent strength, U.S. small-cap valuations are modestly attractive; however, small-cap companies face risks from higher leverage and wage pressures. U.S. large-cap equities are vulnerable to the softening earnings environment and slowing global growth.

U.S. Value
Neutral
U.S. Growth

U.S. growth stocks are priced above historical averages, while value stocks lack a catalyst to advance.

Despite extended valuations, secular growth companies offer more durable growth in a lower-growth environment. Value stocks have cheap valuations, but moderating economic growth and the flat yield curve pose headwinds.

Int'l. Value
Neutral
Int'l. Growth

International value stocks may be challenged by broad economic weakness.

International growth stocks are less exposed to slowing growth, and their valuations have moderated. Persistently low interest rates and the deteriorating growth outlook are headwinds for value stocks given their cyclical orientation, particularly in the financials sector.

Fixed Income

U.S. Investment Grade
Neutral
U.S. High Yield

High yield corporate fundamentals remain broadly positive with low default expectations.

Yields for U.S. investment-grade bonds remain low, with limited concerns from growth and higher inflation. High yield bonds have a yield advantage and near-term default expectations are low, but the late stage of the credit cycle is a concern.

U.S. Investment Grade
Neutral
Emerging Markets

Broad emerging markets debt yields are attractive, supported by improving fundamentals.

A dovish Federal Reserve and fading country-specific risks could be beneficial for developing markets. Despite a healthy rebound, valuations for many emerging markets currencies remain attractive in select areas.

U.S. Investment Grade
Neutral
Ex U.S. Investment Grade

International bond durations remain extended.

U.S. investment-grade bond yields remain low, with limited concerns from growth and higher inflation. Hedged yields outside the U.S. are favorable for dollar-based investors, but international bonds have a relatively high sensitivity to interest rate changes.

*The combined asset allocation assets managed by T. Rowe Price Associates, Inc., and its investment advisory affiliates. This figure includes assets that are held outside of T. Rowe Price but where T. Rowe Price influences trade decisions.

This material represents the views of the T. Rowe Price Asset Allocation Committee only and may not reflect the opinion of all T. Rowe Price portfolio managers. This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. The views contained herein are as of March 2019 and may have changed since that time. Information and opinions, including forward-looking statements, are derived from proprietary and nonproprietary sources deemed to be reliable but are not guaranteed as to accuracy.

There are inherent risks associated with investing in the stock market, including possible loss of principal, and investors must be willing to accept them. The stocks of larger companies generally have lower risk and potential return than the stocks of smaller companies. Since small companies often have limited product lines, markets, or financial resources, investing in them involves more risk than investments primarily in large, established companies. The value approach carries the risk that a stock judged to be undervalued is actually appropriately priced. International investing involves unique risks, including currency fluctuation. Bond yields and prices will vary with interest rate changes. Investments in emerging markets are subject to abrupt and severe price declines and should be regarded as speculative. High yield, lower-rated bonds generally involve greater risk to principal than investments in higher-rated securities.

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