Opportunities on the Horizon: Investing Through a Slowing Economy

Thematic updates | WEALTH OUTLOOK 2023 | MID-YEAR EDITION | 42 As economic and profits growth bottoms in the next few quarters, this year may mark the twilight of the defensive trade. The Global Investment Committee already trimmed our overweight to global pharmaceuticals after 23% outperformance vs global equities since mid-2021. US large cap value shares are now trading at valuations 21% above their average since 1995. But not all defensives were spared last year. Faster-growing health care segments like biotech and life sciences were hit by rising capital costs, but their underlying business models should be relatively uncorrelated to the economic cycle. The earnings of cyber security specialists remain resilient and will likely be a key secondary beneficiary from the buildout of AI, as discussed in Generative AI: The beginning of (another) technological revolution , Global dividend growth is another tactical overweight that has seen smaller drawdowns since the bear market began in 2022. While dividend growers tend to lag in early cycle recoveries, this strategy should have a permanent place in core portfolios given its track record of long-term outperformance.