T. Rowe Price has taken a more defensive stance, increasing its underweight to global sovereign bonds and warning of ongoing inflation pressures.
In its latest Global Asset Allocation: The View from Australia report, the firm said it had “increased our underweight position to global bonds given potential for upward pressure on US interest rates from increased supply to accommodate US fiscal policy and inflationary risk posed by tariffs”.
Instead, T. Rowe has leaned into credit, adding to overweight positions where spreads and fundamentals remain more supportive.
“We added to our overweight to credit sectors given its income advantage in a potentially sideways market as fundamentals remain broadly supportive and default risk remains low even in a slower economic environment,” the report said.
The firm remains neutral on equities overall, it said, balancing what it described as “solid fundamentals, ongoing fiscal support and a broadly constructive earnings backdrop against stretched valuations and lingering trade uncertainty”.
Regionally, Australia was downgraded due to “valuation concerns increased further with earnings not on par with global peers”, while the US was described as expensive but still underpinned by improving fundamentals.
Europe, the manager said, continues to benefit from fiscal spending and accommodative monetary policy, though the lack of innovation leaders was noted as a structural headwind.
Meanwhile, emerging markets were seen more favourably, supported by easing trade tensions, rising fiscal stimulus and a weaker US dollar.
T. Rowe also raised caution over the growing reliance on artificial intelligence as the dominant market driver.
“Markets have priced in a high degree of certainty that the pace of AI spending will continue and that those companies that are investing heavily in AI technology will see a significant pay-off,” it said.
“The risk for investors today, however, is that the AI theme is the primary driver of the market and economic growth … the risk of disappointment is high. Delivering perfection has almost become a requirement rather than a goal.”
BlackRock, by contrast, used its scheduled 12 September rebalance of its Enhanced Strategic Model Portfolios to lean further into equities while retaining select defensive positions.
The firm said it would “maintain a modest equity overweight” supported by “the easing of trade tensions, ongoing economic resilience and expectations for more accommodative central bank policy”.
“Within developed markets, we prefer US equities over that of European and Japanese equities, underpinned by relatively stronger corporate earnings. Concurrently, we see further upside potential in Emerging market equities amid a reduction in trade policy uncertainty and a positive earnings outlook,” BlackRock said.
BlackRock also kept small but deliberate overweights to gold and infrastructure.
“Infrastructure and gold have performed resiliently year-to-date and added value to the portfolio. We maintain a small overweight to these asset classes as they offer both upside return potential and downside protection within the portfolio,” the report noted.
Allocations show gold at around 3 per cent across the models, while infrastructure via the iShares Core FTSE Global Infrastructure ETF accounts for 6 per cent in growth-tilted portfolios.
Fixed income adjustments were more selective, with additions to Australian inflation-linked bonds to protect real value and trims to global aggregate and emerging-market debt.
The positioning comes on the back of strong performance. BlackRock’s Aggressive model returned 13.8 per cent in the year to 31 July, Growth 12.1 per cent, and Balanced 10.2 per cent.
