UBS Equities-Global Equity Strategy _Quantitative Framework and Positioni...-115579726

ab23 May 2025Global ResearchGlobal Equity StrategyQuantitative Framework and PositioningEach month, we update the three key parts of our quantitative framework:1) Scorecards - Our individual scorecards rank sectors based on valuations, sensitivity to our UBS macro scenario, earnings momentum, price momentum (where extreme), positioning and quality fundamentals. The composite scorecard combines all these factors into one overall score.2) Earnings versus Trend - We look at the EPS versus trend to evaluate one element of earnings risk as well as the fit with trend.3) Machine Learning - This looks at which macro variables are the most important to the relative sector returns by refitting and training a machine learning model on a three-month rolling basis. The variables we look at are largely daily macro proxies (such as 2-10 Yield Curve, Hard Data, AI Narrative, China Proxy, Soft Data, US 10y breakeven and US 10y real yield) and are supplied by Sean Simonds (see Tactical Dashboard).This quantitative framework constitutes only one part of our overall weightings analysis.Regions: EM are now top of the scorecard. We recently upgraded to benchmark (see here). At the start of the year GEM had been bottom. The US is bottom of the scorecard, we are benchmark, with the risk of underperformance much higher than outperformance. Europe is ranking attractive on valuation but has slipped on relative economic momentum and earnings momentum and thus has slipped to second bottom on the scorecard but we feel that the fundamentals are strong enough to warrant an overweight (see here). The UK is middling hampered by the weakest Monetary Conditions score of any region which again should change if the UBS view of 3.75% year end and 3% June 2026 comes to fruition. We are overweight the FTSE for currency unhedged portfolios. Japan ranks second top but again relative monetary conditions that have been abnormally supportive are likely to change as the BOJ is the only major country not cutting rates and UBS forecast Yen/$ 130 year end. We are underweight Japan.Sectors: We are underweight global cyclicals, which, with some exceptions (Paper, Transport, Banks), are not cheap (Capital Goods is still the most expensive sector in Europe). Global Healthcare Equipment is top of our aggregate scorecard. In general, we are overweight 'growth' defensives - healthcare equipment, non-US defence, flavouring companies, software and very select utilities, and we favour low financial leverage. On the cyclical side, we are overweight Financials (European and Japanese banks, reinsurance and life) and our cyclical bias elsewhere is via domestic Europe. We continue to be very selective on Tech, where, top down, we prefer Software to Semis.Crowding: The most crowded region (relative to its history) is the US and the least crowded region is Europe. Japan is much more crowded than Europe. The most crowded sectors (relative to history) are Tobacco, Food retailing and Semis. The least crowded are F