Summary
We have three strategic asset allocation models based on risk tolerance: Conservative, Growth and Aggressive. We tactically adjust the models based on our outlook for the capital markets segments. This is a discussion of the growth segment of the models. So far, stock investors have been enjoying 2024, with the S&P 500 up about 27% this year. By comparison, the fixed income benchmark ETF AGG was flat. Our Stock-Bond Barometer model modestly favors stocks over bonds over the long term. As such, these asset classes should be close to their target weights in diversified portfolios, with a slight bias toward equities. We are overweight large caps. We prefer large caps for growth exposure and financial strength, while small caps offer value despite the recent rally. Our recommended exposure to small and mid-caps is 10%-15% of equity allocation, below the benchmark weighting. US stocks have outperformed global stocks over the past one and five years. We expect this trend in favor of US equities to continue given volatile global economic, political, geopolitical and currency conditions. That said, international equities offer favorable valuations in the short term, and we target 5%-10% of equity exposure to the group. In terms of growth and value, growth recovered and exceeded value in 2024 as interest rates stabilized. In the longer term, we expect that growth led by the innovative IT sector will not continue
