Asset Allocation Committee Strategy

Asset Allocation Committee Strategy

Executive Summary

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 $292 billion in assets under management as of December 31, 2017.*

February 2018 Positions

  • All Asset Classes
  • Equities
  • Fixed Income
Current Position (as of February 2018)

Equity valuations are expensive and at risk from higher interest rates and volatility, but bond yields have become more attractive.

Global growth trends continue to support equities, but higher labor and input costs could pressure margins, especially in the U.S. Bond yields are likely biased higher as central banks tighten monetary policy amid higher inflation.



International equities are earlier in their economic cycles, and they offer attractive valuations and improving growth.

Relative to the U.S., valuations in international markets are modestly more attractive as improving economic growth, positive earnings trends, and strengthening global trade offer further support. Valuations in the U.S. are extended but tax policy is supportive.


Stronger global trade, attractive relative valuations, and rising corporate earnings support emerging markets (EM) growth.

EM valuations are modestly attractive versus developed markets, and EM stocks are supported by global demand for exports. Interest rates may rise as central banks respond to stronger growth, and rising inflation. Global trade policies and stability of energy prices are concerns.

Global Equity
Real Assets

A long-term supply/demand imbalance still weighs on energy and commodities prices.

U.S. energy production is likely to increase in response to higher energy prices and production cuts from other oil-producing nations. Other commodities remain structurally challenged by supply/demand imbalances. Valuations for Real Estate Investment Trusts (REITs) are attractive.


Lower corporate taxes could spur mergers and increased spending on capital projects among U.S. small cap companies.

U.S. small-caps offer attractive valuations versus U.S. large-caps, which could face headwinds from a rebound in the U.S. dollar. Global small-caps are likely to benefit from improving domestic growth trends, particularly in Europe and Japan, and improving global trade.

U.S. Value
U.S. Growth

Valuations for growth stocks are less attractive after recent strength. Tax reform impacts could be a catalyst for value stocks.

Value stocks benefit from a sustained pickup in economic growth as well as higher interest rates. Growth stocks should continue to benefit in the current low growth environment, but valuations are less compelling after recent outperformance.

Int'l. Value
Int'l. Growth

Following strong performance, international growth valuations are less attractive versus international value stocks.

Improving European, notably so within financials, and Japanese economies help support valuations for value stocks. Valuations for industrials and consumer staples sectors are above historical averages.

Fixed Income

U.S. Investment Grade
U.S. High Yield

High yield fundamentals remain broadly positive, and default expectations are low. Upside is limited at current valuations.

Despite the late-stage credit cycle, fundamentals remain positive for high yield bonds, with default rates falling and corporate earnings rising. There is likely a limited upside potential given current valuations.

U.S. Investment Grade
Emerging Markets

Emerging markets (EM) valuations are extended, but debt features modestly attractive yields and improving fundamentals.

Valuations are stretched after strong performance throughout 2017 and increased political uncertainty among several key countries, including Mexico, Turkey, Brazil and South Africa is concerning.

U.S. Investment Grade

Low yields and extended durations outside the U.S. dampen outlook and offer an unattractive risk/return profile.

European bonds are at risk from rising rates as European Central Bank tightens monetary policy. Yield and duration favor U.S. investment grade debt and the U. S. dollar should benefit from improving economic growth and tax reform.

*The combined asset allocation assets under management of the T. Rowe Price group of companies as of December 31, 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 February 2018 and may have changed since that time. Information and opinions, including forward looking statements, are derived from proprietary and non-proprietary sources deemed to be reliable but are not guaranteed as to accuracy.

There are inherent risks associated with investing in the stock market, including possible loss of principal, and investors must be willing to accept them. The stocks of larger companies generally have lower risk and potential return than the stocks of smaller companies. Since small companies often have limited product lines, markets, or financial resources, investing in them involves more risk than investments primarily in large, established companies. The value approach carries the risk that a stock judged to be undervalued is actually appropriately priced. International investing involves unique risks, including currency fluctuation. Bond yields and prices will vary with interest rate changes. Investments in emerging markets are subject to abrupt and severe price declines, and should be regarded as speculative. High yield, lower-rated bonds generally involve greater risk to principal than investments in higher-rated securities.

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