Fixed Income
Weight: Slight Overweight
We maintain a slight overweight due to near-term economic uncertainty. With bond yields near 10-year highs, fixed income offers attractive income and competitive return potential relative to equities.
U.S. Taxable Investment Grade
Weight: Moderate Overweight
Drawn by higher yields and lower economic sensitivity, we are tactically overweight investment grade bonds, which offer appealing risk-adjusted return prospects.
Duration
Weight: Neutral
We remain neutral on duration, as we believe interest rate risks have become more balanced. Slowing economic growth could pull yields lower, while sticky inflation and potential disruptions from rising public debt and budget negotiations could push yields higher.
U.S. Taxable Non-Investment Grade
Weight: Moderate Underweight
We increased our underweight in high yield bonds after spreads tightened, despite signs of weakening economic conditions. However, loose credit conditions, higher index quality, and a manageable maturity wall limit the need to become too defensive.
Equities
Weight: Slight Underweight
We are slightly underweight equities overall, due to reduced exposure to both U.S. large cap Growth and small cap, partly offset by a moderate overweight to mid caps.
U.S. Large Cap Blend
Weight: Neutral
We see elevated second-half earnings risk for the S&P 500 from tariffs, DOGE, immigration policies, and monetary policy that remains moderately restrictive. As a result, we have lowered our return expectations, increasing the attractiveness of other asset categories.
Growth
Weight: Moderate Underweight
We remain underweight Growth due to elevated stock-specific risks among top constituents, including antitrust concerns, significant international exposure, and stretched valuations.
Value
Weight: Neutral
We maintain our neutral weight to Value. Greater economic sensitivity and limited valuation support is balanced by sector-specific opportunities in oversold Healthcare and in Financials with deregulation likely.
U.S. Mid Cap
Weight: Moderate Overweight
We maintain a mid-cap overweight, favoring the segment for its attractive valuations, lower international exposure, and less economic risk compared to small caps. Within mid caps, we prefer high-quality companies with strong cash generation.
U.S. Small Cap
Weight: Slight Underweight
We are slightly underweight small caps, reflecting greater earnings risk. Small business owner sentiment has weakened, particularly around capital spending and hiring.
International Developed
Weight: Neutral
We moved to a strategic weight after reevaluating the prospects for continued U.S. dollar weakness, attractive relative valuations, and weakening economic conditions in the U.S. However, Europe’s fragmented capital markets and regulatory burdens temper our enthusiasm.
International Emerging
Weight: Neutral
Also, now at a strategic weight based on similar factors as Developed markets: potential dollar softness, attractive valuations, and weaker U.S. fundamentals. The next key inflection points will be outcomes of ongoing U.S. trade negotiations.
Strategic: Strategic asset allocation is a baseline allocation between asset classes established with a longer term focus and congruent with an investor’s investment goals and objectives. The allocation is meant to optimize the asset mix through methodical diversification in an attempt to maximize return and lessen risk.
Tactical: Tactical asset allocation is differentiated from strategic asset allocation by having a much shorter time horizon and the goal of adding alpha beyond what would be allowed through static strategic weights. Markets tend to be more volatile over shorter time horizons, while longer time frames tend to smooth out that volatility. That enhanced volatility in the short term creates the opportunity for either return enhancement and/or risk reduction by adding to or reducing weights of different asset classes.
