TAA: fixed income likely faces the biggest headwinds

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Developed stocks have been hit by the Fed’s guidance, and were overdue a correction to begin with, but the medium-term outlook for growth may be brightening and we have left our tactical overweight intact for fear of missing a likely rebound.

Market Outlook: Normal service will be resumed 4 of 6 What is risk (II)? 2 of 6

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Instead, in mid-June we cut our recommended weightings in High Yield and Emerging Market bonds to underweight, and raised our weighting in cash to neutral. We continue to advise a strategically underweight position in government bonds and a tactical underweight in investment grade credit (and cash), and remain neutral on emerging equities and on diversifying assets.†

Figure 1: Tactical Asset Allocation tilts and Strategic Asset Allocation Benchmark (moderate risk profile)

Figure 2: Total returns across key global asset classes