3Q 2023 Strategic Investment Outlook

What You Need to Know

A narrow market, led higher by a small number of stocks, has been doubly painful for many investors in 2023. First, a strong consensus for more cautious positioning earlier this year removed a tailwind, and it’s difficult to outperform when leadership is concentrated in a few large cap names. In this note, we discuss what this landscape means for investors, especially as it pertains to the attractiveness of more strategic positions.

Short-term sentiment is not supportive, but as horizons are extended out, there are more supports for risk assets beyond central bank messaging. At long investment horizons, many investors who care about defending purchasing power will likely need to add to equity weights. The difficulty comes in balancing that need with short-term caution.

We discuss what this situation means for active managers. While the recent narrow market has been more challenging, emerging markets and small caps stand out as area where idiosyncratic alpha has still been achievable.

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