Fixed Income Asset Allocation Insights

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• The euro is on shaky ground
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Dialing Down Portfolio Risk After October Volatility

Equity markets suffered their largest monthly decline since the global financial crisis in October as investors faced softening growth in Europe and emerging markets, Saudi Arabian-driven geopolitical concerns, Italy’s budget woes, and Brexit, as well as a multi-year high in US Treasury rates. Despite the turmoil, credit spreads in investment grade corporate, high yield and emerging markets debt markets held in relatively well. During this month’s meeting, we decided to reduce overall portfolio risk and have increased our allocation to investment grade to 25% from 20% and reduced our allocation to emerging markets to a neutral 20% from 25%. The decision was based on our view that a relatively hawkish Federal Reserve and a stronger dollar could pressure some emerging economies, spawning greater volatility. Still, we remain constructive on emerging markets debt broadly as we continue to find credits trading at attractive valuations and having stable or improving fundamentals.