July 2021

Global Asset Allocation Viewpoints

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Welcome to our latest Asset Allocation Viewpoints - your monthly source for actionable insights on portfolio positioning from our Asset Allocation Committee and Multi-Asset team. 

Market Perspective

As of June 30, 2021

  • Global economic growth to remain strong through the back half of the year, albeit off peak levels, as monetary and fiscal policy support moderates from crisis-level highs.
  • Longer-term interest rates likely challenged to move higher as growth moderates, inflation softens from recent peaks, and Federal Reserve moves closer to tapering asset purchases, while short-term rates could begin to price in tighter policy leading to a flattening yield curve.
  • While still supportive, global monetary policy should continue to see a gradual trend toward tightening among central banks, notably within emerging markets (EM), facing rising inflation.
  • Key risks to global markets include the path forward for the coronavirus, elevated inflation, central bank missteps, higher taxes, stricter regulatory environment, and increasing geopolitical concerns.

Portfolio Positioning

As of June 30, 2021

  • We remain modestly underweight equities relative to bonds and cash as the risk/reward profile looks less compelling for equities and could be vulnerable to fading policy support, increased rate volatility, high inflation levels, and potential tax increases.
  • Within equities, we continue to favor value-oriented equities globally, U.S. small-caps, and EM stocks as we expect cyclically exposed companies to continue to benefit from strong economic growth and global reopening.
  • Within fixed income we continue to have a bias toward shorter duration, higher yielding, and inflation sensitive sectors through overweights to high yield bonds, floating rate loans, and to a lesser extent, short-term Treasury inflation protected securities, which we moderated over the month.

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Market Themes

As of June 30, 2021

Easy on the Austerity

Following a shaky start to its vaccine rollout, Europe appears to be recovering as businesses are reopening and lockdowns continue to ease in some areas. As the European Central Bank debates the extension of its EUR 1.85 trillion asset purchase program, due to expire next March, additional fiscal stimulus is being rolled out through the unprecedented European Union recovery fund, worth up to EUR 800 billion. While the fund shows signs of growing unity among member nations, lines are being drawn once again as members take sides on scaling back monetary policies put in place amid the pandemic. Leaders such as Mario Draghi, Italy’s prime minister, warn that shifting back to austerity too soon could ignite another decade-long recovery similar to the post-global financial crisis period. With Europe already lagging the U.S. and China, shifting back to austerity too soon could prevent the region from heading on a path towards more sustainable growth.

Euro Area GDP

As of 30 June 2021


Past performance is not a reliable indicator of future performance.

Sources: Haver Analytics, Bureau of Labor Statistics, IMF.

Curbing Our Enthusiasm

Global equity markets represented by MSCI All Country World Index have returned nearly 12% year-to-date in U.S. dollar terms amid signs that the worst of the pandemic may finally be behind us. But, as supportive trends that have fueled the global economic growth rebound start to fade, it’s hard to envision equity markets expanding at the same record pace. In the back half of the year, we expect that growth will be off peak levels, monetary policy will continue to tighten, fiscal stimulus will be at lower levels, and higher taxes are likely. Adding to these headwinds, equity markets are sitting at elevated valuations supported by low interest rates, input costs are rising, and earnings growth is expected to moderate next year. Despite these trends, equities remain attractive as pent-up demand continues to be unleashed and while moderating, growth remains elevated. However, the ultra-easy environment is changing quickly and may lead to more volatility ahead, so investors may need to curb their enthusiasm for equity returns going forward.

Global Equity Index Returns1,2

As of 30 June 2021


Past performance is not a reliable indicator of future performance.

Sources: Haver Analytics, Bureau of Labor Statistics, IMF.

Global Equity Index is represented by MSCI All Country World Index. Total return in USD.

2 Source: FactSet. Financial data and analytics provider FactSet. Copyright 2021 FactSet. All Rights Reserved.

Regional Backdrop

As of June 30, 2021

Regional Backdrop

Click each region below for more details

  • Vaccinations widely distributed, case count near lows
  • Infrastructure spending bill likely to be passed
  • Healthy consumer balance sheets and high savings rate
  • Strong earnings expectations


  • Elevated stock and bond valuations
  • High corporate and government debt levels
  • Fed dovishness has peaked
  • Corporate taxes likely to rise

  • Higher exposure to more cyclically oriented sectors that should benefit from economic recovery
  • Pace of vaccinations has significantly improved
  • Monetary and fiscal policy remain accommodative
  • Equity valuations remain attractive relative to the US


  • Limited long-term catalysts for growth
  • Limited scope for European Central Bank to stimulate further
  • Brexit likely to negatively impact trade
  • Potential for new coronavirus variants to cause continued outbreaks

  • Outbreaks milder than in the rest of the world thus far
  • Cyclical orientation should benefit from economic rebound
  • Strong fiscal and monetary support
  • Improving corporate governance


  • Vaccination effort has been slower than other developed markets
  • Weak economic growth going into crisis, driven by long term demographic headwind
  • Limited long-term catalysts for growth

  • Exposure to cyclical areas of economy should benefit from broad global recovery
  • Commodity prices are elevated
  • Chinese economy remains strong
  • Equity valuations attractive relative to developed markets


  • COVID risk remains high in Central Asia and Latin America
  • Vaccine supply and distribution infrastructure are well behind developed markets (excluding China)
  • Stimulus from China is fading
  • Limited ability to enact fiscal stimulus (excluding China)

Asset Allocation Positioning

As of June 30, 2021

These views are informed by a subjective assessment of the relative attractiveness of asset classes and subclasses over a 6- to 18-month horizon.

Positioning Key

Asset Classes

While peaking, growth remains supportive; however, elevated valuations leave little room for upside. Equities could also be vulnerable to fading policy support, coronavirus challenges, input cost inflation, tax increases, and higher rates.

Yields are rangebound as they face countervailing forces of higher inflation versus past peak growth and tightening global central bank policies. Solid fundamentals but upside limited for credit sectors.



Elevated valuations reflecting strong recovery and earnings rebound. Rising rates and taxes could be headwinds. Cyclical sectors should continue to benefit from strong macro backdrop, but a lot of good news is already priced in.

Procyclical sector profile, improving vaccination rate, and attractive relative valuation should prove beneficial amid strong global growth and higher rates. Aggressive stimulus measures and pent-up demand may provide further tailwinds.

Cyclically oriented sector profile, low valuations among financials, fiscal support, and improving vaccination rate supportive. However, long-term catalysts for sustained growth are scarce.

Despite year-to-date weakness and challenges in vaccine rollout, cyclical exposure should be supportive along with attractive valuations and improving global trade outlook.

Exposure to global trade and elevated commodity prices offer strong tailwinds. However, fading Chinese stimulus, potential Fed tapering, and vaccine distribution challenges remain concerns.

Style & Market Capitalization

Growth remains vulnerable to extended valuations and narrow leadership. Cyclical orientation of value could benefit from pent-up demand, economic strength, and infrastructure spending. Higher rates could also be supportive due to heavy financials exposure.

Deep cyclical orientation of value stocks combined with attractive relative valuations and improving earnings outlook could be catalysts for further rotation out of growth. Vaccine progress may also provide a boost.

Small-caps should be supported by economic growth, infrastructure spending, pent-up demand, and strong earnings outlook. However, margins could suffer if input costs remain elevated.

Strong domestic growth remains supportive for small-caps, and idiosyncratic opportunities are plentiful. Meanwhile, steeper yield curves and strong global economic outlook should benefit large caps given cyclical orientation and exposure to international trade.


Supply bottlenecks and elevated demand continue to buoy commodity prices. However, long-term outlook remains challenged by a supply/demand imbalance and a less accommodative Fed. Outlook and valuation for real estate attractive despite rising rates.


Peaking growth and inflation expectations could keep yields elevated, but could be capped as policy becomes less accommodative. IG corporate valuations less compelling as spreads near record lows.

Major central banks’ policies should keep short-end rates contained as policy changes unlikely through 2022, while higher inflation could bias longer yields higher. Hedged yield advantage less pronounced with narrower short-term interest rate differential.

Longer-duration bonds remain vulnerable to a further rise in yields as growth and inflation expectations remain elevated, but expectations for tighter policy could increase rate volatility.

Inflationary pressures expected to remain high through year end, but mostly priced in. Likelihood of Fed letting economy run hot reduced following June meeting.

Limited upside from elevated valuations, relative yields still attractive versus alternatives within fixed income. Fundamentals and commodity rebound broadly supportive.

Relative valuations and credit fundamentals remain favorable. Sector should benefit from higher standing in the capital structure and shorter-duration profile as rate hike expectations begin to be priced in.

Sector offers attractive yield versus developed markets with improving growth broadly supportive; however, vulnerabilities across countries vary in coronavirus spread, rising inflation, and susceptibility to rising rates.

Valuations remain modestly attractive; improving macro backdrop and potentially weaker U.S. dollar could provide tailwinds. Shift higher in U.S. rates and EM central bank rate hikes could be a headwind.

1 For pairwise decisions in style & market capitalization, positioning within boxes represent positioning in the first mentioned asset class relative to the second asset class.

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Portfolio Implementation

As of June 30, 2021


Tactical Allocation Weights


Fixed Income

Tactical Allocation Weights


1 U.S. small-cap includes both small- and mid-cap allocations.

Source: T. Rowe Price. Unless otherwise stated, all market data are sourced from FactSet. Copyright 2021 FactSet. All Rights Reserved.

These are subject to change without further notice. Figures may not total due to rounding.

Neutral equity portfolio weights representative of a U.S.-biased portfolio with a 70% U.S. and 30% international allocation; includes allocation to real assets equities. Core fixed income allocation representative of U.S.-biased portfolio with 55% allocation to U.S. investment grade.

Source: MSCI. MSCI and its affiliates and third party sources and providers (collectively, “MSCI”) makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. Historical MSCI data and analysis should not be taken as an indication or guarantee of any future performance analysis, forecast or prediction. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.

Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). BARCLAYS® is a trademark and service mark of Barclays Bank Plc (collectively with its affiliates, “Barclays”), used under license. Bloomberg or Bloomberg’s licensors, including Barclays, own all proprietary rights in the Bloomberg Barclays Indices. Neither Bloomberg nor Barclays approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

Important Information

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