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Bonds Maintain Performance Edge

Stocks rallied in July, but bond prices rose as well and fixed-income instruments continue to outperform in 2020. From an asset allocation standpoint, we favor stocks over bonds for long-term investors given high valuations for bonds; U.S. stocks over international stocks; growth stocks over value; and large-caps over small. Drilling deeper, we look for large-cap companies with strong balance sheets and experienced management teams to be the leaders during an eventual recovery. Our recommended exposure to small- and mid-caps is now 10% of equity allocation, below the benchmark weighting. Moving to the international arena, U.S. stocks have outperformed global stocks over the trailing one- and five-year periods. We expect this trend to continue over the long term, given volatile global economic and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 20% of equity exposure to the group. In terms of growth and value, growth, led by Tech and Healthcare, continues to outperform value, driven by Energy and Materials. As there is no change expected in this dynamic over the next few quarters, we favor growth. ...  to small- and mid-caps is now 10% of equity allocation, below the benchmark weighting. Moving to the international arena, U.S. stocks have outperformed global stocks over the trailing one- and five-year periods. We expect this trend to continue over the long term, given volatile global economic and currency conditions. That said, international stocks offer favorable near-term valuations, and we target 20% of equity exposure to the group. In terms of growth and value, growth, led by Tech and Healthcare, continues to outperform value, driven by Energy and Materials. As there is no change expected in this dynamic over the next few quarters, we favor growth.   more

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