Major Asset classes

Fixed Income
In this late stage of the investment cycle, preserving capital is a primary focus—thus our ongoing modest overweight in fixed income. This detracted from overall Q4 performance as equities outpaced fixed income appreciation. Given current conditions, we expect bond portfolios are less likely to experience capital appreciation as compared to recent years. By emphasizing investment grade corporate bonds and short-term maturities, portfolios should be less sensitive to rising interest rates.

Equities
All equity components experienced strong absolute returns in Q4, though our lighter US position weighed on performance. Our ongoing underweight in equities reflects expensive valuations (varying among regions) and markets’ susceptibility to some degree of correction. Looking ahead, the regional allocation remains consistent. We’re also increasing emphasis on higher-quality securities/underlying funds. We’ll be patient as underlying fund managers look for selective opportunities at more attractive prices.

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