In response to a deteriorating technical picture, the allocation to MSCI EAFE (Developed Ex-US) equities in our Legacy Navigator portfolio has been replaced by fixed income exposure across 7-10 Year US Treasuries (IEF), High Yield Bonds (ANGL) and US “Low Volatility” equities (USMV). (Owing to their substantial exposure to interest-rate sensitive sectors such as utilities and real estate, “Low Volatility” equities often have high correlation with fixed income.)
This follows a similar move with Emerging Market equities earlier in the year and is broadly reflective of the weakening global growth environment. Should this condition persist, defensive exposures such as fixed income and Alpha Seeker will likely benefit relative to growth- or beta-oriented positions. Over a decade since the last global recession, we may soon see how many of today’s investors have forgotten the lessons of history. Click chart below to enlarge