Note Jan 30, 2025: Q1/2025 –In 2025, The Rubber Hits The Road: For politics, central banks and corporations in 2025, the rubber hits the road The U.S. administration has marked its campaign promises from immigration to tariffs to political demands, domestic and international. Its modus operandi appears to be aggressiveness first and then assessment, eschewing past experience or that of others. Global annual GDP growth around 3% is both weak and severely bifurcated. As second largest economy, China has been using soft power to access materials from Africa, Latin America and even Quad member Australia. In 2022, with Europe then facing cutoff from Russia, the German Chancellor found Canada noncommittal. On energy currently, strategic diversification could be different with climate change reduced in priorities. Bull-in-a-China-Shop action likely represents greater risks than is appreciated.
Tit-for-tat tariffs or other economic cut and thrust could be consequential. Weak governments in many nations are facing challenges. In Europe, France and Germany are weakened by elections, undertaken or imminent. The same goes for Japan and South Korea in Asia and now for Canada with a caretaker government. Russia is mired in war. China has real estate weakness of unknown duration. All represent challenges for populaces, even with authoritarian management.
Trashing the imperialism over trade routes of the 19th / first half 20th century, then President Eisenhower in 1956 quashed it over the Suez Canal. Massive trade and prosperity expansion followed. In a world of multiple wars and tariffs with tit-for-tat risks, tension over Panama could subsequently set global precedents from the South China Seas to the Straits of Hormuz to the Dardanelles to still nascent access over the Northwest Passage, to countless smaller disputes. To distract from domestic pressures, stressed and weak governments often resort to external adventures. In the absence of global leadership and with temptations for belligerence, current political economic aspects are likely to lead to higher, not lower, capital market volatility.
Currency gyrations are likely to expand. Into myriad uncertainty mix, the Federal Reserve has a marked tilt to classical central bank creative ambiguity in its January 29, 2025 FOMCstatement staying rates.Last in the 1970s were political pressures (one successful) on two Federal Reserve Chairmen. In 2025, political exhortation needs to be monitored. With a moderate Federal Reserve, rate cuts in Europe and domestic real estate centric Canada, only a sliver increase in Japan and direct injection in China all risk currency and trade tensions. With potential for central bank policy bifurcation in 2025 and geopolitical tensions expanding even among allies, we expect precious metals to have a role for asset mix.
In fixed income for domestic constrained investors, we favor credit spread quality focus on short to medium duration. Action worldwide is overdue on fiscal deficits. Despite increases from minimalist or negative levels, fixed income yields remain low in many jurisdictions. It make many issues basically currency, plays with political frailty increasing risks to return. For global mandates, we prefer a mix of up to 10 Year maturities with U.S. Notes, U.K. Gilts, Australian, New Zealand and Netherlands issues offering some yield risk cushion compared to other, even G-7 issues.
In equity allocation, we expect earnings in 2025 to be below consensus. Only a partial consideration are lower than U.S market valuations in Japan, Europe and the U.K.. All three have slower economic growth and ambient monetary challenges. Emerging markets remain global growth sensitive. We see reasons for focus upon diversification, selectivity, and risk premium oriented valuation. All once again have seemed absent early in 2025.
Instead of momentum for a fabulous few and elevated weightings, we would diversify via a 25% cap on Information Technology and within it. As perspective on economy changing technologies, for railroads in the 19th century, automobiles in the 20th century and for that matter fiber optics in the late 20th/early 21st century, at the company level, rationalizations were fierce not least in supposed leaders.
Salient is recognition that Japan, Europe and the U.K. have heavy weightings in Consumer Staples that undergoing restructuring pressures and which we market weight. Among those historically ascribed as being defensive, we overweight Healthcare but underweight Utilities and Communications Services due to current challenges. For portfolio diversification, imperatives over high valuations require assessment about the delivery expectations already incorporated. We choose to cap Information Technology weightings at 25%. Assessed as strategically vital, we overweight Materials and Energy. For potential cyclical/growth business transition, we favor Industrials over Consumer Discretionary.
Adequacy of capital can be simulated but only assayed during actual crisis, as experienced in 2023 in Swiss banking and U.S. regional banking. In investment funds being built on leverage, nonbank financials appear with potential systemic risk. We are overweight Financials but imperatives abound to favor the strongest engaged again in restructuring.
Asset Mix
At the start of 2025, one certainty is the existence of myriad uncertainties. They include various facets in the global political economy and in the markets. Capital market valuations have seemed again being taken as secondary in concern, compared to a prolonged penchant for deliverance by hanging on to central bank largesse. Still and as benchmark, yields in the long end of U.S. Treasuries have moved up to within reach of our long held neutral assessment of 5%. By comparison, the low point around mid year 2020 of 10 year U.S. Treasury Note yields was 0.56%, was minuscule in Japan and negative in German Bunds. For equities, for corporate debt and for sovereign bond yields in early 2025, there appears lethargy in recognizing uncertainty and change in many jurisdictions, from Canada in North America to Europe to China and Japan in Asia,
In the current markets, much attention is being given to emotive parables against “bubble territory” and “new era” with not enough attention being given to measurable business delivery. Myriad uncertainties call for diversification. Absent in political and market discourse, latent are risks of currency tensions and policy shifts on tariffs and away from freer trade. On upcoming bond yields to tariffs and trade control potential, all have impact on equity valuation compared to prolonged focus on elevated momentum rather than on sustainable delivery.
Amid political exhortation, currency gyrations are likely to expand. Through most of 2025, the central bank environment for OECD countries is likely to contrast with the early phase 2008 policy cohesion that was experienced long post the sharp point credit crisis. Policy bifurcation has likely increased. Distinct domestic pressures demand attention amongst many major central banks. As well, domestic policy pressures such as real estate in China, inflation in India and currency aspects generally have been at work in emerging economies. As Japan has long been discovering, exit from quantitative excess was never likely to be seamless for advanced country central banks. From a miniscule rate of 0.25%, the Bank of Japan has finally increased by a sliver, its rate to a still low 0.50%. In Europe, the Bank of England left rates unchanged at 4.75% while the ECB cut rates by 25 basis points to a lowly 2.75 % on January 30, 2025. The Bank of Canada cut rates by another 25 basis points to 3.00% or far below U.S. Fed Funds at 4.25%.
Currency gyrations are likely to expand. Into myriad uncertainty mix, the Federal Reserve has over the last two years gone from inflation as priority to data dependence afor growth and now has a marked tilt to classical central bank creative ambiguity in its January 29, 2025 FOMCstatement staying rates.Last in the 1970s were political pressures (one successful) on two Federal Reserve Chairmen. In 2025, political exhortation needs to be monitored. With a moderate Federal Reserve, rate cuts in Europe and domestic real estate centric Canada, only a sliver increase in Japan and direct injection in China all risk currency and trade tensions. With potential in 2025 for central bank policy bifurcation and geopolitical tensions expanding even among allies, we expect precious metals to have a role for asset mix.
The U.S. administration has marked its campaign promises from immigration to tariffs to political demands, domestic and international. Its modus operandi appears to be aggressiveness first and then assessment, eschewing past experience or that of others. Global annual GDP growth around 3% is both weak and severely bifurcated. As second largest economy, China has been using soft power to access materials from Africa, Latin America and even Quad member Australia. In 2022, with Europe then facing cutoff from Russia, the German Chancellor found Canada noncommittal. On energy currently, strategic diversification could be different with climate change reduced in priorities. Bull-in-a-China-Shop action likely represents greater risks than is appreciated.
Most of 2024 saw turbulent elections in many democracies that have left mandates fragile at best. The United States and the United Kingdom were exceptions in delivering clear mandates but populist pressures will test the clarity of political delivery. Next, Canada faces early elections after a minority government and prorogue while facing U.S. tariff pressures. From Asia including India, Japan and South Korea and from Europe including France, Germany and Italy, current government coalitions have the reality of being brittle and fractious. Even in many major countries, governments appear weak with public angst about the cost of living and to be unwilling to publicly enunciate a requirement for budgetary restructuring. In our consideration when it comes to risk premiums assumed, capital markets should not consider the political economy as being solely exogenous for market direction.
Despite repeated urgings from the IMF,OECD and the BIS, government authorities have appeared reluctant to address the so-called third rail of public finance, namely that of deficits and their long term linkages to financial stability. Back in April 2010, the U.S. Bowles Simpson National Commission on Fiscal Responsibility issued its report on measures to address deficits. It had specifics that seem also to be adaptable to the many countries currently facing large deficits that are likely to otherwise expand. Over a decade and a half has passed of inaction. Admittedly, unforeseen emergencies emerged like Covid relief. Still, the risks of volatility and bifurcation in capital markets appear elevated. Unfortunately after a long prelude, only when concrete crisis unfolds will change be likely stimulated. For risk premiums to become more realistic, capital market volatility is likely to first have to flare.
Stable leadership needs to display vision. Yet in early 2025 on key issues like budgetary management requiring difficult choices, many countries appear to display obfuscation and tenuous tendencies. At least in its early 2025 statements, the new U.S. administration has appeared with brusque behavior even towards allies. Appearing have been cavalier approaches to the trade, tariff and even territorial integrity understandings that have underpinned the prosperity of eight decades. Trashing the imperialism over trade routes of the 19th / first half 20th century, then President Eisenhower in 1956 quashed it over the Suez Canal. Massive trade and prosperity expansion followed.
Tension over Panama could subsequently set global precedents from the South China Seas to the Straits of Hormuz to the Dardanelles to still nascent access over the Northwest Passage, to countless smaller disputes. To distract from domestic pressures, stressed and weak governments often resort to external adventures. Despite attempts at peace and with the role of the new U.S. administration still to be cemented, vicious wars are salient from the Middle East to Ukraine. Also ongoing are Asia Pacific tensions that also have territorial dominance undertones that threaten to stoke chronic conflict. In the absence of global leadership and with temptations for belligerence, current political economic aspects are likely to lead to higher, not lower, capital market volatility.
In fixed income for domestic constrained investors, we favor a credit spread quality focus on short to medium duration. Action is overdue worldwide on fiscal deficits. Despite their increases from minimalist or negative levels, fixed income yields remain low in many jurisdictions. It make many issues basically currency plays amid political tentativeness, increasing risks to return. For global mandates, we prefer a mix of up to 10 Year maturities with U.S. Notes, U.K. Gilts, Australian, New Zealand and Netherlands issues offering some yield risk cushion compared to other, even G-7 issues.
In equities, sector diversification and delivery are likely to override stances that are based on geographies. In equity allocation, we expect earnings in 2025 to be below consensus. Only a partial consideration are lower than U.S market valuations in Japan, Europe and the U.K.. All three have slower economic growth and ambient monetary challenges. Emerging markets remain global growth sensitive.We prefer delivery of operating earnings (or free cash flow where the former is absent) over momentum for 2025.
Instead of momentum for a fabulous few accorded elevated weightings, we would diversify with a 25% cap on Information Technology and within it. As perspective, even while railroads in the 19th century, automobiles in the 20th century and for that matter fiber optics in the late 20th/early 21st century represented economy changing technologies, rationalizations at were fierce at the company level, even amongst supposed leaders.
Salient is recognition that Japan, Europe and the U.K. have heavy weightings in Consumer Staples which have under restructuring pressures and which we market weight. On sector diversification among those historically ascribed as being defensive, we have overweight Healthcare but underweight Utilities and Communications Services due to their current challenges. For portfolio diversification imperatives about high valuations that require assessment with respect to the expectations that are already incorporated, we choose to cap Information Technology weightings at 25%. Assessed as strategically vital, we overweight Materials and Energy. For potential cyclical/growth business transition, we favor Industrials over Consumer Discretionary.
Adequacy of capital can be simulated but only assayed during actual crisis, as experienced in 2023 in Swiss banking and U.S. regional banking . In this era of investment funds being built on leverage, nonbank financials appear with potential systemic risk. We are overweight Financials but imperatives abound to favor the strongest engaged again in restructuring.
Equity Mix
With financials and basic consumer staples reporting with a deluge globally to follow now in early 2025, a potentially seminal series has commenced of corporate annual and quarterly result releases. There exists vibrant discussion about which represent the more salient forms of corporate releases ( for instance as in Financial Analysts Journal article https.//doi.org/10.1080/0015198X.2024.2375957 ; “Earnings per Share Don’t Count” at 50 | FAJ – CFA Institute ). As a key current market consideration, we expect operating returns earnings to be below consensus. Judging from recent corporate discussions, revenues could show more bifurcation and hence need more attention from managements and investors alike. Consequently in 2025, operating earnings (or free cash flow where the former is absent) are likely to be preferred over momentum. In consensus for 2025 for instance for the S&P 500, rising marginal returns on equity appear implied but be difficult to achieve.
For 2025, the consensus perennial penchant is again for earnings gain of 12% for the S&P500. Such increases and more are characteristic of periods immediately after a market earnings bottom or for emergent companies. In the present period of business broadening amid many challenges, we expect the S&P 500 earnings gains for 2026 to be closer to long term averages of around 7%, or half of the present consensus The momentum equity market focus has drawn succor from administered rates ease overriding earnings risks. It is likely to change over 2025 to greater focus on tangible business delivery
It would mean more concern about the direction of fixed income yields. Greater balance has been overdue between growth and value. It developed in mid year 2024 only to be overridden by momentum in late 2024. Lower than U.S. valuations in Japan, Europe and the U.K. represent only a partial factor for global equity allocations. All three regions have slower economic growth and have ambient monetary challenges. Emerging markets remain global growth sensitive. Elsewhere and irrespective of a stellar business reputation by the fabulous in Information Technology, we see narrow equity leadership as being a risk and not a source of opportunity. Sector diversification and delivery are likely to override that based on geographies or momentum.
While streamed entertainment has advantages, navigation to revenue generation remains delicate such as that from stable advertising and we underweight Communications Services overall. For underweight Consumer Discretionary, even in luxury, relative demand is likely to be driven by basics and lower price points rather than aspiration. Business issues ranged from demand to logistics are likely to be prolonged. Those with actively managed physical and on line sites, managed brand and private labels appear faring better but still show bifurcation. We market weight Consumer Staples as still being in the throes of severe brand pruning even in the drinks business.
Capital market momentum prolonged euphoria in Information Technology was again in late 2024, narrowly based by equity and by segment, favoring cloud computing and Artificial Intelligence (AI). Considering the delivery, business facility location and growth rates already assumed in valuation multiples are subject potentially to momentum/value rebalance. We have capped Information Technology at 25% of equity mix. It would still leave meaningful exposure in Information Technology (hardware versus software and within, for instance). We also favoring allowing for recognition of the strategic nature of Materials and Energy as well as for growth diversification via the more defensive Healthcare space.
Geopolitics has perennially waxed and waned in intermingling with deliverability of both hydrocarbon and green energy. We have a long held $70/Bbl. WTI stable zone as being strategic facets for businesses. We overweight Energy via diversified companies that are used to risk analysis. After decades of excess, careless production, longer term strategic considerations likely apply for our overweight Materials, often solely regarded as cyclical investments. Due to business pricing uncertainties, a strict growth tilt is difficult within Healthcare but its defensive appeal exists as a counterpoint to euphoria momentum that is a risk in Information Technology.
The introduction of tariff threats by the new U.S. administration on top of those elsewhere add cloudiness to otherwise robust potential in Industrials. Still, potential expansion of demand supersedes cyclicality and includes more robust defense spending with infrastructure buildups .by companies and governments. Instead of excess leverage, this cycle likely revolves around redeployment of real estate space. We underweight Real Estate but favor its industrial components as beneficiaries of urgency. A salient feature for underweight Utilities is sovereign yields likely to be rising, already with 5% yields close for U.S. 10 year Notes. Consumer pushback against cost of service has demonstrated allowable rate of return risks for underweight Utilities even as they massively upgrade.
Unknown unknowns vehemently striking at the solvency of financial institutions has long been a business risk. The current environment is no exception. Massive quantitative ease is measuredly being withdrawn. Adequacy of capital can only assayed during actual crisis. As such, cries have to be taken in stride about a lack of transparency about banking stress tests in the U.S. and about Basle III strictures such as about capital leverage. As concomitant issue in this era of investment funds being built on leverage. Nonbank financials appear with potential systemic risk. The Financials are critical to capital markets and we are overweight. Amid ambient volatility, imperatives abound to favor the strongest Financials engaged again in restructuring.
Communication Services: Over the last quarter century, erupting has been restructuring in communications, cable and streaming assets in major ways and are being undertaken once more. In telecommunications services, technology changes, now including 5G (and for some 6G) have meant requirements for another round of heavy expenditures. In the meantime, optical fiber is afflicting obsolescence on to cable and legacy assets. Social media has been so much in vogue for concept euphoria, including artificial intelligence. Social media managements have to navigate a new political regimen in the U.S. and several other jurisdictions. Unfettered, uncensored usage appears currently back in vogue in the U.S. versus accuracy imperatives in the European Union (including on political interference) versus outright authoritative missives on control of content. The navigation remains delicate for c social media conduits from ownership to revenue generation, such as from advertising. While entertainment has some advantages, as concept slides into delivery, we underweight Communications Services overall.
Consumer Discretionary: Relative demand is likely to be on basics versus aspiration for Consumer Discretionary including 2025 onwards andeven in luxury. From advanced to emerging countries, from the wealthy (however defined) to the plebian, it makes for a starkly contrasting cycle to the prior one. In advanced country democracies, recent elections have demonstrated the populist angst being felt on the cost of living from shelter to day to day expenses. In the luxury space, recent corporate reports have seen management musings about a need to redeploy offerings, even in those for clientele with ample disposable income. Even as authoritarian regimes try to boost domestic spending, ostentatious expenditures were crucial in the last cycle but are currently being frowned upon. More generally, basic product company reports have appeared to contain less corporate pressures to restructure than appears for those linked to fashion. Related issues are likely to be prolonged, ranging from demand to logistics. We have Consumer Discretionary at underweight.
Consumer Staples: In both advanced countries demand and that in growth in emerging countries, we anticipate angst about costs of living to have priority for the consumer that rather than aspiration. A wide range of elections in 2024 have unveiled deep populist consumer angst. It afflicts Consumer Discretionary where the pressures may be most acute, in fashion for instance. Spillover of consumer disposed to basics and cost means that in Consumer Staples as well, optimal product ranges, private label and consumer preferences are a work in progress. It makes Consumer Staples not just defensive plays in capital markets. Intra sector bifurcation shows myriad parameters to be afflicting otherwise long pedigreed brand companies. Meanwhile in their results as reported, companies with actively managed physical and on line presence ( and aggressively managed brand and private labels) appear faring better. On balance in slow global economic growth with bifurcation of delivery not yet over, we market weight Consumer Staples.
Energy: With the U.S. President pronouncement on looking for OPEC to cut oil prices and pressure Russia over Ukraine, geopolitics further intermingle with deliverability of both hydrocarbon and green energy. As consequential benchmark, we maintain our long espoused crude oil price stability as being around $70/Bbl. WTI. Many targets for exiting hydrocarbon usage appear being extended into 2050 and beyond. As well and despite wars and intra country tensions, OPEC and near OPEC understandings on production may be in flux. U.S. withdrawal from the Paris Climate accord further changes the Energy mix to alternate ways for cleaner energy, including from hydrocarbons. From Europe to Asia, supply lines have become redrawn while the U.S. focuses on securing a still vital energy source. Many countries are finding that their companies face profitability stress for instance in, solar panel domestic production. All of a number of strategic facets have us overweighting Energy by utilizing diversified companies long used to risk analysis.
Financials: Unknown unknowns vehemently striking the solvency of financial institutions have long erupted. The current environment is no exception. Even as massive quantitative ease is measuredly withdrawn, central bank policy seems more bifurcated. The U.S. President has also weighed in on lowering interest rates. Federal Reserve policy stress could ensue. Adequacy of capital is only tested during actual crisis, as experienced in 2023 in Swiss banking and U.S. regional banking. The multiheaded wildfires around Los Angeles are but the latest example globally. The Fukushima disaster of 2011 and before that the Katarina floods of New Orleans in 2005 reportedly each afflicted losses of $200 billion. After the pressures from minimalist interest rates in quantitative ease, it is likely that massive calls on insurance companies will ensue. Cries emerge about a lack of transparency about banking stress tests in the U.S. and about Basle III strictures such as on leverage. As concomitant issue about fund structures built on leverage, nonbank financials appear as potential systemic risk. Albeit for different reasons in each jurisdiction, managing the basics of credit quality, solvency and net interest have more relevance than appears generally appreciated worldwide,. The Financials are critical to capital markets and we are overweight but in ambient volatility, favor the strongest financials most aggressive on restructuring asset exposure.
Healthcare: In emerging and advanced economies alike, albeit differing demographics and pandemics like thase of Covid- 19 will likely sustainedly force more expenditures on Healthcare. Still to be determined are the duration and impact of U.S. withdrawal from the World Health Organization (WHO) as just announced in early January 2025. In emerging economies, addressing childhood diseases has virulence. In the advanced world, aging populations demand more attention for the other end of the spectrum. With many governments dealing with fiscal deficits and private providers also challenged, the pricing of care and its universality remain issues of stress. Pricing flexibility appears an ongoing unknown for Healthcare companies, including for research.. The business response could be that of optimizing revenue not price. Within the Healthcare sector from existent drug therapies to emerging biotechnology treatments to medical devices, the emphasis would be on provable treatment options. It would make a strict growth tilt difficult within Healthcare. Healthcare has defensive appeal as diversification counterpoint to euphoria momentum risk in Information Technology.
Industrials: The introduction of tariff threats from the new U.S. administration and before from other jurisdictions like Europe add cloud to the otherwise robust potential that go beyond cyclicality in Industrials. The robust potential has as its base, a readjustment of global supply chain assumptions. It has been amply demonstrated by war stressing and stretching shipping lanes which in turn is likely to sustainedly stimulate production facility development closer to final demand. A triangular tariff interplay between the U.S., China and the European Union does also threaten smaller countries, as seen even for Canada as G-7 and NATO member. Strategic priorities emerge in energy and materials as well as up the production chain, all dependent on capital goods and infrastructure. Accentuated tensions are now to do not just with Eurasia, the Middle East and Asia Pacific but also in the Arctic as climate change contributes to opening opportunities and rivalries. From the U.S. have come challenges to increase defense spending to 5% of GDP in NATO. In Asia, defense imperatives are also expanding. We are overweight Industrials but bifurcation is likely to require selectivity globally.
Information Technology: For several quarters and frenetically in late 2024/early 2025, capital market momentum euphoria has narrowly based itself by equity and by segment in Information Technology, namely cloud computing and Artificial Intelligence (AI). From perspectives of business and investment portfolio diversification, crucial next are the level and timing of cloud AI, delivery. After 5G, next level 6G looms by 2030. Global competition is already fierce on next level chip technology. Location of semiconductor manufacture and cloud facilities are strategically critical, even between friendly, countries. We have capped Information Technology at 25% of equity mix based on the levels of delivery, business facility location and of long term earnings growth of above 20% annual growth rates that appear as already being assumed in valuation multiples. Information Technology has a brutally competitive edge, not least for early leaders. We favor diversification in exposure within Information Technology (hardware versus software and within, for instance). We would also include space for recognizing the strategic aspects of Materials and Energy as well as growth diversification via Healthcare.
Materials: Due to excess, careless production, Materials were classified as cyclical investments. Longer term strategic considerations likely now beckon. One indication of change is the brouhaha from the United States about resources in Greenland. Rare earth and metals have already entered the tension arena between the United States and China. Precious metals being added to personal and official reserves appear to be more widespread than may be realized. For such considerations, one would have to go back at least into 1960s to 1970s. Precious metals and rare minerals secure access are crucial for an increasingly technology oriented orientation for global growth. They are essential from semiconductors to climate to business command and control equipment. War, drought and transport interruptions have demonstrated the criticality of access to fertilizers and generally to the grain/agriculture nexus. Still outside market consensus, we overweight Materials as potentially being in a growth/cyclical interface.
Real Estate: Myriad international and local real estate cycles have come undone by hubristic leverage shattered by interest rates and the cost of capital. This cycle is likely to revolve around the urgency of redeployment of real estate space. It includes past the horrific fires of Los Angeles, natural and manmade calamities. The occupancy parameters of industrial, commercial and residential space have now to do not with rebuild for similar usages but instead, planned redeployment. Such examples would be of office space repurposed into residential spaces and of shopping centers becoming broader venues for entertainment experiences. Due to the urgencies of logistical change and politics affecting many businesses at large, modernized industrial space may be more robust. While we are underweight Real Estate as its restructuring is likely to be prolonged, we do favor industrial components as being beneficiaries of urgency.
Utilities: Salient currently for Utilities is that yields in the long end of U.S. Treasuries have moved up, to within reach of 5%. By comparison around mid 2020, the yield low point of 10 year U.S. Treasury Note was 0.56% and negative in German Bunds . Sovereign bond yields in Japan and Europe remain low. Fiscal deficits appear on an unsustainable path with rising bond yields being of risk. In the classic investment metric of Utility yields versus those in sovereign bonds, these aspects are negative for expecting Utilities to be defensive. In their business of operations, large facility expenditures emerge as necessary for actual delivery of greener generated power ( like solar and wind) and urgency for clean delivery upgrades in traditional hydrocarbon driven and nuclear facilities. From water and electric facilities, pushback against tariff neutrality against cost of service has demonstrated the allowable rate of return risks for Utilities even as they massively upgrade and we are underweight.
Asset Mix
Global U.S.
Equities-cash 51 % 51%
-priv. 4 4
Fixed Income 25 20
Cash 15 15
Other 5 5
Total-% 100 100
Geographic Mix
Currency/ Equities Fixed Cash
Real Income
Americas 61% 65% 67% 55%
Europe 22 20 26 37
Asia 9 13 6 3
Other 8 2 1 5
Total -% 100 100 100 100
Benchmark Stance
Global U.S.
Comm. Serv. 1.5% 9.3% Under-weight myriad challenges
Cons. Disc. 10.2 11.2 Under-weight cons. is frugal
Cons. Stapl. 8.3 5.5 Market-weight brands still to cut
Energy 4.1 3.2 Over-weight diversified & strg.
Financials 18.5 13.8 Over-weight Strong restructuring
Healthcare 9.3 10.1 Over-weight across segments
Industrials 12.3 8.1 Over-weight, capex & defense
Info. Tech. 28.3 32.5 Cap at 25% to diversify mix
Materials 3.01.9 Over-weight div.& prec. metl
Real Est 1.9 2.1Under-weight, favor ind ppty.
Utilities 2.6 2.3 Under-weight -ROE risk.
Total-% 100.0 100.0
Benchmark: MSCI, S&P E.o.e. Copyright Reserved
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