The Asset Allocation Committee (“the AAC”) is positive on the economic outlook given resilient economic growth and the likely trend lower in inflation and interest rates. Nonetheless, our asset-class views remain largely neutral—which implies broad stock and bond market exposure—as many assets are fully priced and we anticipate a shift away from the recent narrow leadership. Our only two underweight views, on cash and hedged strategies, emphasize this theme of maintaining equity and fixed income positions to benefit from the current environment. Our overweight views on commodities and private markets reflect ongoing inflation and geopolitical risks and rich opportunities in illiquid assets, respectively.

EQUITY

• The AAC has retained its neutral overall view on equities, and its overweight view on U.S. small and medium-sized companies.
• We anticipate further broadening of equity-market performance, which leads us to continue to favor small and medium-sized companies, and a balance between styles and regions.
• We believe momentum in Japanese equities can continue, and that an incipient rebound in manufacturing and other cyclical parts of the global economy could begin to favor European and certain emerging markets over the coming months.

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