Spenser Lerner, CFA, Managing Director – Head of Multi Asset Solutions, Harbor Capital Advisors, Inc., and Ross Frankenfield, CFA, Managing Director – Head of Investment Specialist Team, Harbor Capital Advisors, Inc., discuss Harbor’s midyear outlook on global markets.
The Harbor Multi-Asset Solutions Team (MAST) develops strategic views that look out seven to ten years and take into account long-term capital assumptions, as well as risk and correlation between asset classes.
“We layer onto that a tactical asset allocation, which looks out six to twelve months, and this incorporates our more timely views around current positioning in portfolios. Lastly, we layer on manager selection, which is effectively where we decide to implement some of our views through active managers and we budget risk for idiosyncratic output to help diversify our tactical and strategic views,” says Lerner.
Lerner discusses the three pillars of Harbor’s tactical framework: fundamental growth momentum, the liquidity cycle, and valuation and expected returns. “We like to focus on back-testing different ways we look at markets, whether it’s different types of valuation techniques, or other things like that, to make sure what we’re looking at makes fundamental sense and has also worked empirically from a historical perspective. We then look for assets that are attractive in all three pillars of our tactical framework,” says Lerner.
To focus on the first pillar, fundamental growth momentum, Harbor constructs business cycle indices for global regions to inform their view on whether or not growth momentum is above or below trend and then forecasts the GDP rate of change to determine how growth momentum will accelerate or decelerate. For the liquidity cycle, Harbor identifies whether current policy is dovish or hawkish and what incremental changes are being made, which has implications for asset classes across the board.
For the last pillar, valuation and expected returns, Harbor looks to model what they identify as fair value for different asset classes, regions, sectors, and styles, based on top down and bottom up macro fundamentals. Harbor expects that inflation won’t become a runaway pressure. The concern instead is that if inflation ends up being more persistent than expected, then it will cause the Fed to be incrementally tighter than markets currently think it will be. Harbor also expects US growth to decelerate but still remain above trend next year, and employment growth is expected to accelerate as unemployment benefits expire.
Harbor is closely monitoring geopolitical risks with China, as the Biden administration appears to not be repealing any tariffs that the Trump administration implemented, and the Delta variant, which has the potential to cause a steep rise in COVID cases. Harbor will also be tracking rising corporate tax rates and regulation, an overly hawkish Fed, and regulatory risk with big tech, all of which can greatly affect the performance of varied asset classes.
Harbor is an asset management firm with over thirty-five years of experience. Harbor prioritizes a fiduciary-first mindset and active management to offer institutional-caliber investment solutions. Harbor currently holds sixty-three billion dollars in assets under management, and maintains strong relationships with subadvisory partners and currently manages seventeen subadvisory partnerships that span across twenty-one strategies and seventeen asset classes.
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