Invesco Solutions is maintaining defensive portfolio positioning and has a fixed income overweight versus equities in place.
Within this, the firm favours US equities, defensive equity factors, higher duration, and credit quality, while maintaining an overweight to the US dollar.
In the asset allocation update, senior portfolio manager and head of investments at Invesco Solutions, Alessio de Longis, laid out the reasoning behind his firm’s tactical asset allocation.
He said his ‘framework remains in a contraction regime’. The prospects of rising trade tariffs following Donald Trump’s election win is a key factor in this.
“Following our month-end update, financial markets responded to the US election outcome by repricing a meaningful positive growth shock for the United States, while the impact on global markets remains highly uncertain,” de Longis said.
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“These dynamics are consistent with two main policy drivers, namely fiscal spending and import tariffs.”
In terms of specific features of the equities allocation, Invesco is overweight defensive sectors with quality and low volatility characteristics, and tilting towards larger-cap stocks at the expense of value, mid and small caps.
“Despite the extended positioning in mega-cap quality names, we expect a combination of quality and low volatility characteristics to outperform and provide downside risk mitigation in a scenario of falling growth expectations, falling bond yields, and weaker equity markets,” de Longis said.
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Sector preferences include healthcare, staples, utilities and technology at the expense of cyclical sectors such as financials, industrials, materials and energy.
Geographically Invesco’s preference for the US stems from declining global risk appetite, stronger US earnings revisions versus the rest of the world, and a still-favourable outlook for the US dollar.
