Asset Allocation

We are pleased to share this <i>Special Report</i> rolling out our Global ETF Strategy (GETF) service's model ETF portfolios.
We are in the latter stages of developing the digital interface that will serve as the central nervous system for the GETF service and are excited to be rolling it out next month. In the meantime, the GETF team has embarked on its regular bi-weekly publication schedule. An ETF Primer <i>Special Report</i> will follow on October 26. It will discuss ETF architecture, operation and trading, and is meant to help investors determine how they can best deploy ETFs to accomplish their tactical and strategic goals.

The mini-consolidation in equities reflects the ongoing tension between market-supportive liquidity and a sketchy corporate profit backdrop.

Global bond yields continue to grind higher, led by signs of improving growth, moderately higher inflation and central banks having difficulty staying credibly dovish. Maintain a below-benchmark duration stance.

Our <i>Fourth Quarter Strategy Outlook</i> presents the major investment themes and views we see playing out for the rest of the year and beyond.

This week, we are reviewing all of our active trades discussed in the last twelve months, which are intended to be an overlay to our recommended fixed income portfolio.

There are two key risks that could derail a bear-flattening of the yield curve. The first is a Trump election victory, the second is a flaring of stress in the non-U.S. banking sector.

The DM Country Model favors the U.S., with Japan and U.K. being the two large underweights. The Sector Model continues to recommend a cyclical tilt.

In September, the model outperformed the S&P 500, while it underperformed global equities in both USD and local-currency terms. For October, the model trimmed its allocation to stocks and boosted its weightings in bonds and cash.

It's hard to make a case for attractive returns from any asset class over the next year. We dial down risk a bit but ending our overweight on junk bonds. Investors should pick up yield where they can but without taking excessive risk.

This month's <i>Special Report<i/> looks at the Fed's policy options in the event that there is a negative economic shock while the policy rate is still very depressed. The Fed's "Plan A" is more QE and forward guidance, which are not up to the task. There is no "Plan B", which means that risk assets will be hit hard during the next downturn.