Q3 2021 Global Asset Allocation Views

Market Review

Stocks hit new highs as pandemic recedes – equity markets were finally able to hit new highs in June after trending sideways during the first part of the quarter.  The latest grind higher was led by big tech after taking over leadership from cyclical sectors.  Breadth has been weak as of late as the rotation from value to growth has occurred while the 10yr yield drops back below 1.5%.  Almost all of the U.S. has fully opened up as covid restrictions have lifted.  We are beginning to see travel pick up, and the return of large gatherings at stadiums and concert venues.

Fiscal Policy sees some bipartisanship – A bipartisan group of senators have come to a tentative agreement on an infrastructure package. The $579 (billions) focuses on mostly traditional infrastructure (planes, trains, and automobiles) as well as broadband and water infrastructure among other items.  A bipartisan group in the House, the Problem Solvers Caucus, has also given their blessing.  The passing of the bill could yet be stifled by both parties.  Democrats on the left do not believe it goes far enough regarding environmental and human infrastructure, though this could be remedied with additional funding through reconciliation.  Republicans are opposed to a two-stage deal that would increase the deficit by over $2trillion.

Commodities showing wide dispersion – There has been wide dispersion in commodity prices over the past 6 months.  Oil is at multi-year highs as OPEC+ have failed to come to an agreement on increasing supply.  Slowing demand and increased U.S. production could put a dent on prices.  Gold has remained confused with the direction of inflation expectations and competition from cryptocurrencies.  After hitting an all-time high last summer, it has given back some of the gains over the past year as real yields began to increase.  Industrial commodities such as lumber and copper have gone through wild ups and downs as demand surged in housing and manufacturing and supply was limited due to slow production and supply chain issues.


Global Growth above trend – as the pandemic induced recession dissipates, the economy continues to show strong growth.  We continue to have accommodative fiscal and monetary stimulus as well as rising confidence in the outlook.

Strong earnings support equities – earnings season is around the corner and confidence in break-out earnings is at a four year high.  Though valuations are high, easy liquidity and strong earnings lead us to view equities favorably.  There are pockets of the market that are elevated but having a diversified approach in our portfolios will help reduce volatility.

Staying overweight cyclical, value, and international – there has been a rotation away from cyclical value sectors (financials, materials, and industrials) and international equities over the past quarter but we view that as an opportunity to continue to add to those areas.  We continue to view fixed income as an important asset class within a portfolio as it helps to limit drawdowns and can be used as a source of cash when we need to add to our equity exposure.



Persistent inflation – the most talked about item over the second quarter was inflation and whether it was going to be hyperinflation similar to the 70s or a transitory one-time spike to an elevated level similar to the end of World War 2.  I lean towards the latter scenario, and the bond markets have tended to as well, but it is still too early to say one way or the other and it is important keep inflation hedges in the portfolio.

New virus strains – the Delta variant of Covid-19 continues to spread in areas like Britain and Australia as well as low-vaccinated areas here in the U.S.  It appears that the vaccines work against this variant but there is still the concern that as these strains mutate it could produce a variant that the current vaccines would be ineffective against.

Policy tightening – some Fed members have already spoken out for slowing down QE and for raising rates sooner than expected.  We have also seen fiscal stimulus proceedings slow to a crawl in congress.  Unexpected tightening could create problems in the housing market and other areas of the market where excessive leverage has been used.  Countries such as Mexico, Brazil, and Czech Republic have all hiked rates due to concerns about inflation.

Model Changes

  • Downgrading Investment-Grade Corporates and upgrading Emerging Market Debt and Treasuries
    • Investment-Grade Corporates are at their narrowest spreads in the cycle compared to treasuries, limiting their upside.
    • Emerging Market Debt should benefit from the reopening of the global economy and more attractive yields.
    • Treasuries provide better protection from equity market volatility especially as we are near all-time highs.


  • Downgrading Health Care and upgrading Asia Pacific
    • We have been overweight heath care due to the positioning of the active funds in our model. We will get closer to neutral by underweighting the sector.
    • Overweighting Asia Pacific as this part of the world has been late in rebounding from the pandemic and there is the potential for surprise outperformance as these countries get closer to returning to normal.

Written by:  Antonio Belmonte, CFA, Chief Investment Officer


These are the opinions of Antonio Belmonte and not necessarily those of Cambridge, are for information purposes only, and should not be construed or acted upon as individualized investment advice.  Investing involves risk.  Depending on the types of investments, there may be varying degrees of risk.  Investors should be prepared to bear loss, including total loss of principal.  The strategies discussed herein are not designed based on the individual needs of any one specific client or investor.  In other words, it is not a customized strategy designed on the specific financial circumstances of the client.  However, prior to opening an account, Cambridge will consult with you to determine if your financial objectives are appropriate for investing in the model.  You are also provided the opportunity to place reasonable restrictions on the securities held in your account.