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 $299 billion in assets under management as of March 31, 2018.*
March 2018 Positions
- All Asset Classes
- Fixed Income
Global growth trends are supportive of equities, but margins could be weighed by higher rates, wages, and input costs. Bond yields have improved and bonds have historically provided greater downside protection than equities.
Relative to the U.S., valuations in international markets are modestly more attractive as improving economic growth, positive earnings trends, and strengthening global trade boost support. Valuations in the U.S. are extended but have declined from recent peak.
EM stocks are supported by global demand for exports. EM valuations are modestly attractive versus developed markets. Interest rates may rise as central banks respond to stronger growth, and rising inflation. Trade policies and stability of energy prices are concerns.
Valuations for Real Estate Investment Trusts (REITs) are attractive. U.S. energy production is likely to increase given the higher energy prices and production cuts from other oil-producing nations. Other commodities remain structurally challenged by supply/demand imbalances.
U.S. small-caps are less vulnerable to trade policy and offer attractive valuations versus U.S. large-caps, where gains have been heavily concentrated in a just a few technology stocks. Global large-cap valuations are reasonable with strong earnings growth momentum.
Growth stocks are likely to continue to benefit in the current low growth environment, but valuations are less compelling after strong outperformance. Value stocks benefit from a sustained pickup in economic growth as well as higher rates.
Improving economies in Japan and Europe, notably so within financials, help support valuations for value stocks. Following strong performance, valuations for industrials and consumer staples sectors are above historical averages.
Fundamentals remain positive for high yield bonds, with default rates falling and corporate earnings rising, despite the credit cycle being in a slate stage environment. There is likely a limited upside potential given current valuations.
Valuations are somewhat extended and vulnerable to developed market central bank tightening, a stronger U.S. dollar, 2018 political calendar and slower Chinese growth. However, broad EM debt fundamentals remain attractive.
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 March 31, 2018. 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 March 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.