Global Equity Market Model Sector Allocation | June 2024

Global equity market model sector allocation | June 2024

Welcome to Applied Philosophy, a regular piece on global equity markets from András Vig and the Global Market Strategy Office. In the piece, they take an in-depth look at a topic of economic or market significance, before assessing how its evolution could inform or impact their model asset allocation.  

Key takeaways

  • US equities have been on a strong run, partly driven by multiples reaching levels only seen during extreme market events.
  • At the same time, valuations in the rest of the world have remained close to or below long-term averages (apart from India, for example).
  • We analyse the relationship between cyclically-adjusted price-to-earnings ratios and ten-year forward returns to compare potential regional returns.
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Asset allocation is the process of dividing an investment portfolio among different asset classes, such as stocks, bonds and cash and so on. Bonds generally tend to be ‘safer’ investments than stocks and are, for example, seen as more defensive. Assets are allocated based on economic and monetary expectations.  

Model portfolios are a diversified group of assets. They are designed to achieve an expected return with the corresponding risk. Model portfolios are usually extensively researched and, in most cases, have a combination of managed investments.

Spreading the risk and number of potential opportunities across various asset classes, such as equities, fixed income, and commodities. The aim of diversification is to reduce the overall risk of the portfolio.

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