Challenging Environment Calls for Defensive Approach in Equities

Justin Tugman: From our perspective, this has been one of the more challenging environments we’ve seen in the past decade. It’s one where we’ve seen interest rates continue to go down around the world. The economic outlook has been slowing, not just in the U.S., but globally. Yet, the market has continued to increase, and we’ve seen multiples expand.

The earnings growth has also slowed. All of the gains this year have been driven by multiple expansion. I think when you add all those things together, it certainly leads to a little bit more of a dangerous environment. From our perspective, we really don’t know how this is going to end. Do we go into recession? Do we see slower economic growth, but one that continues to chug along?

I think when we try to build our portfolios, we try to think about every scenario possible and build the ones that we think are going to provide the most defensive qualities yet be able to participate in the up market should everything work out fine. So again, I think it makes sense to be a little bit more defensively positioned here. But at the end of the day, we believe that equities are the best place to be going forward.

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