Overweight non cyclical to cyclical equities. Shifting to more cyclical equity as greater value. We cap cyclical equity exposure to 50% for the moment. Maximum exposure to this category over the business cycle is 60%.
Note overall position of portfolio is neutral cyclical/non cyclical securities to express our uncertainty on whether deflation or inflation will be a problem in many economies. We believe, from what we have seen so far, that inflationary pressures are more likely due to the continuous efforts from authorities in many economies to increase their monetory base.
Greater weight to large cap than small cap
Greater weight to developed markets than emerging markets. This value gap is shrinking and EM equities are becoming more interesting
Greater weight to equities and cash than bonds or alternative investments
Greater weight to high quality companies with low debt, strong returns on capital and large free cash flow. This category is starting to becoming well priced, especially in the consumer staples arena. Hence we are reducing this category for more cyclical equity exposure. A number of excellent physical asset plays are available in the USA. Europe is priced for a significant recession and are where we find the most attractive cyclical opportunities. We have virtually no exposure to growth stocks.
Greatest weight to healthcare, oil & gas, financials, technology and industrials.
