Asset Allocation in a Risk-On Environment: Bank and Industrial Stocks

Sam Burns, chief strategist at Mill Street Research, returns to Real Vision to share his ideal asset allocation at this juncture. Measuring risk factors such real yield, credit risk, equity volatility, and metals pricing, Burns concludes that risk appetite remains strong, and therefore, he recommends a portfolio that is overweight equities and underweight bonds. He uses his Monitor of Analysts’ Estimate Revisions (MAER) model to analyze sectors as well as countries, predicting remarkable strength in financial and industrial stocks and underperformance in utilities and consumer staples stocks. His model sees consistent analysts’ earnings estimates strength in the U.S. as well as Europe and relatively weak earnings estimate revisions in Asia (with the exception of Japan).

Key learnings: Burns recommends a portfolio that is overweight equities, underweight bonds, with the equity portion consisting disproportionately of value and cyclical sectors such as financials, industrials, materials, and energy. Burns is not constructive on “defensive” sectors such as utilities or consumer staples.

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