Third Quarter Message to USAA Mutual Fund

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Equities appeared to be propelled by a pair of key trends: stronger year-on-year earnings growth at the corporate level, plus evidence of synchronized global GDP growth for the first time in several years. The latter trend suggests that companies could sustain or even accelerate their profitability in the coming quarters.

Projected year-on-year U.S. earnings growth rate for 3Q is in the high single digits, and it’s even higher in overseas stock markets. This is one of the key reasons why we favor international developed and emerging markets

We are underweight U.S. large cap and small cap stocks, primarily based on relative valuation metrics.

We are overweight non-U.S. developed market equities, emerging market equities, high-yield bonds and long-dated Treasuries. Emerging market stocks have been among the best-performing asset classes in 2017, and we think they remain an appealing investment opportunity based on valuation and earnings growth potential. Profitability is also on the upswing in developed markets as GDP growth improves. High yield is benefiting from very low default rates, while expectations of a slow-moving Fed buoys long Treasuries.

Market-Commentary

Sven

Agree on the valuation basis. Just about all international sectors have done very well relative to US. Our overweighted exposure to EM has done well. The smaller cap oversea equities have done even better. Non-USD EM bonds have returned twice that of US bond index.

Having said that I have been watching the USD relative to other currencies.