Asset Allocation Viewpoints & Positioning Q1 2022: A World of Uncertainty
“Know what you know and know what you don’t know” as the adage goes; or, using Warren Buffett’s vernacular, invest in your circle of competence. Overconfidence bias causes many investors to steadfastly position their portfolios for what they are certain will transpire, but often never does. Our view is as follows: focus on the broad investable themes that you are very confident in during times of uncertainty. The precise level that inflation settles by the end of this year is something we have little confidence in forecasting and would argue that it is perhaps entirely unknowable.
What do we feel confident betting on? Growth will slow dramatically this year, likely led by housing, as a result of financial conditions tightening that started in Q4 of 2021. If inflation persists at high levels, then markets will worry of a policy mistake, and if inflation does not persist then it will be the result of growth slowing meaningfully; either way, headwinds for risk will persist. Lastly, services inflation will continue to run hot, and this will worry the FOMC.
We retain our overall underweight to risk driven by an underweight to credit and an overweight to quality and low volatility equities. We particularly like the Healthcare sector given reasonable valuations and defensive characteristics.
Source: Harbor Capital Advisors Multi-Asset Solutions Team
The views expressed herein are those of the Harbor Multi Asset Solutions Team at the time the comments were made. They may not be reflective of their current opinions, are subject to change without prior notice, and should not be considered investment advice. These views are not necessarily those of the Harbor Investment Team and should not be construed as such. The information provided is for informational purposes only.
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The Federal Reserve Policy Space Model extracts and then combines the trend components of the labor market and inflation to anticipate the stance of Federal Reserve monetary policy.
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