Franklin Global Allocation Fund Q1 2025 Commentary

2025-05-08 06:25:00 ET

Summary

• Global equities declined in Q1 2025 due to US economic concerns and trade policy, while global manufacturing and services activity expanded.
• Sector allocation and stock selection in healthcare, financials, and consumer staples added value; industrials and materials detracted.
• Optimism waned due to inflationary concerns from tariffs; a neutral risk approach is advised despite a slight "risk-on" tilt.
• Credit remains resilient; preference for high-yield debt over US Treasuries, underweight in emerging markets debt due to tight spreads and weak growth.

Key Takeaways

• Markets: After starting 2025 on a strong note, global equities collectively declined during the first quarter due to investor concerns about US economic growth, US President Donald Trump’s trade policy and a broadening trade war. On the economic front, global manufacturing activity expanded in March for the third consecutive month, and flash reports for March showed that global services activity continued to grow in several regions during the quarter. Global aggregate bond indexes gained in US-dollar terms in the first quarter. US bonds fared better than the broader market, although pan-European bonds were the quarter’s best performers.
• Contributors: Sector allocation and stock selection added relative value, with the largest contribution from the healthcare and financials sectors. An overweight and stock selection in consumer staples also contributed on a relative basis.
• Detractors: An underweight position and selection in industrials held back relative results, as did an overweight position and selection in materials. An underweight to utilities also detracted.
• Outlook: While we preserve our appetite for equities, the way we have chosen to express this from a regional perspective has changed. The new US administration’s “America First” narrative has prompted economies in other global regions, most notably Europe, to stimulate their own economies with wide-ranging fiscal spending initiatives. This proactive approach has shifted the narrative away from US exceptionalism and fueled rising share prices and improved earnings estimates elsewhere.

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