The T. Rowe Price Asset Allocation Committee evaluates the relative attractiveness of major asset classes over a 6- to 18-month time horizon. These positions are currently reflected across our suite of asset allocation portfolios accounting for approximately $269 billion in assets under management as of June 30, 2017.*
Q3 2017 Positions
- All Asset Classes
- Fixed Income
Economic growth remains subdued and uncertain as some global central banks move to rein in accommodative policies, which could put upward pressure on yields. The likelihood of pro-growth economic and fiscal policies fueling further upside in equities is in doubt.
Many international developed markets are earlier in the economic cycle than the U.S., supported by monetary stimulus and reasonable valuations. Uncertain Brexit negotiations lie ahead, but the eurozone’s economy and earnings have improved, and political risks have eased.
Valuations and further weakness in energy and commodity prices could weigh on EMs. Risks from a stronger U.S. dollar, higher developed market interest rates, and the impact of protectionist trade policies on global trade and capital flows remain credible but have receded.
The potential for increased U.S. infrastructure spending is supportive, but its ultimate form, timing, and scope remain uncertain. Higher energy prices have been challenged by a sharp U.S. production response, reigniting concerns about global oversupply and pricing pressures.
Increased U.S. fiscal spending and lower corporate taxes could fuel small-cap outperformance given their greater sensitivity to the domestic economy and higher marginal tax rates. Economic growth and stimulative monetary policies may benefit international small-caps.
The postelection rally in lower-quality value sectors faded, and growth sectors outperformed in the first half of 2017. Increased spending, tax cuts, and deregulation should support cyclical sectors like financials and energy, but required legislative approval remains uncertain.
Valuations for overseas value stocks remain broadly attractive as growth sectors such as consumer staples appear increasingly expensive. However, value sectors like financials and energy face headwinds from modest global growth and global commodities oversupply.
While high yield bonds continue to offer a yield advantage over investment-grade bonds, we reduced our overweight as we believe there is less opportunity for further appreciation. Additionally, high yield bonds remain vulnerable to a pullback in commodity prices.
A risk-on environment after the U.S. elections and improved economic fundamentals boosted EM bonds, but renewed weakness in commodity prices and concerns about rising protectionism, higher developed market interest rates, and a stronger U.S. dollar pose ongoing risks.
Yield and duration favor U.S. investment-grade debt. U.S. dollar strength has declined but may find support as the Federal Reserve tightens policy. Improving economic growth and expectations of initial monetary tightening in Europe could increase yields and boost the euro.
*The combined asset allocation assets under management of the T. Rowe Price group of companies as of June 30, 2017. This figure includes assets that are held outside of T. Rowe Price but where T. Rowe Price influences trade decisions. The T. Rowe Price group of companies includes T. Rowe Price Associates, Inc., T. Rowe Price International Ltd, T. Rowe Price Hong Kong Limited, T. Rowe Price Singapore Private Ltd, and T. Rowe Price (Canada), Inc.
This material represents the views of the T. Rowe Price Asset Allocation Committee only and may not reflect the opinion of all T. Rowe Price portfolio managers. This material is provided for informational purposes only and is not intended to be investment advice or a recommendation to take any particular investment action. The views contained herein are as of July 2017 and may have changed since that time.