Our Multi-Asset Portfolio Solutions (MAPS) team provide a monthly framework for making global sector and style decisions.

Recent sector trends

• Equity markets finished the month unchanged with cyclical sectors outperforming defensives. Consumer Discretionary, Energy and Industrials were the best performers while Health Care and Telecoms struggled. Worries about a sovereign debt crisis in Europe led to weakness in the Financials in the second half of the month.
• Companies in the US and Europe reported strong quarterly earnings. Earnings upgrades continued to be most supportive for cyclical sectors with many companies also providing a more upbeat guidance for the rest of the year. Most of the more defensive companies also reported earnings and revenues that beat analysts’ expectations.

Sector Strategy

• Recent data releases point towards a gradual recovery of economic growth in most developed countries. The Emerging Markets, however, have been experiencing stronger growth momentum which also raises the odds of policy tightening. We continue to believe that current preferences should be tilted towards more cyclically sensitive sectors.

Recent style & size trends

• Small cap companies continued to outperform large cap stocks in April. This trend was particularly strong in the US market where small cap stocks outperformed by more than 4%. Since the March 2009 lows global small caps outperformed large caps by more than 13%. With regards to style performance, April was a good month for value stocks relative to growth sectors. Since the beginning of the year, value outperformed growth in all regions.

Style Strategy

• Small cap and value styles tend to perform best in an environment of strong economic growth. We believe that a focus on stocks with high free-cash-flow yields and higher RoE could provide a good opportunity to protect investment portfolios against further potential setbacks in markets. We feel that growth stocks are in a better position to outperform in the mediumterm as market focus on the potential for sectors to provide stable earnings growth.
  

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