Asset Allocation

In this report, we present our performance review of the BCA Research Global Fixed Income Strategy (GFIS) model bond portfolio for the Q2/2023, and the outlook and scenario analysis for the next six months. The portfolio return exactly matched that of the benchmark index during the quarter, as modest gains on government bond allocations in the US, UK and core Europe completely offset losses on spread product underweights. Looking ahead, the portfolio is positioned to capitalize on an expected slowing of global growth over the rest of the year through an overweight stance on government bonds versus spread product and above-benchmark duration tilts in the US and core Europe.

We see challenges ahead for Global Buyout across geographies as valuations need further resetting. While we are concerned with capital controls and flight risk in Asia-Pacific Venture Capital, the upside potential from AI may be worth a look. The current entry point for Private Credit is opportune across North America and Europe with the distressed pipeline building. Real Estate does not look appealing with the macro and relative opportunity set driving our underweight. Hedge Funds have a favorable backdrop in the near-term, although prospects differ across Directional, Diversifier, and Crisis Risk Offset strategies.

Stocks fare best when there is plenty of slack in the economy and growth is strong and getting stronger. The good news is that the economic growth score for the US in our MacroQuant model is above its historic average. The bad news is that US economy is operating with little slack and sentiment is getting complacent. We recommend that investors maintain a modest overweight to equities for the time being but look to get more defensive later this year or in early 2024.