UBS Equities-Global Equity Strategy _Quantitative Framework and Positioni...-117363026

ab20 August 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: Japan remains at the top of our aggregate regional scorecard. It scores top on our MCI scorecard but we see a sharp tightening of monetary conditions compared with other regions and it has very high operational leverage. We are underweight Japan. GEM ranks second (unchanged) on the back of strong relative economic momentum, improved monetary conditions and macro sensitivity; we upgraded EM to benchmark in April. Europe is middling and is the cheapest region (ranks top of the valuation scorecard). The US, where we are benchmark, now ranks fourth (up 1 rank), on the back of strong relative earnings momentum and economic momentum but its valuations are at extreme levels. The UK moved to the bottom of the table (down 1 rank), hampered by weak monetary conditions, relative economic momentum and risk appetite. Sectors: We continue to prefer financials to non-financial cyclicals − a very long-running view and we reiterated our overweight of Banks in our recent note here. We are underweight global cyclicals ex-tech and financials (with Capital Goods being the most expensive sector in Europe). Global Healthcare Equipment ranks second on 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. We have also recently upgraded Household Products, which ranks fourth. On the cyclical side, we are overweight financials and our cyclical bias elsewhere is via domestic Europe (budget airlines). 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. The most crowded sectors (relative to history) are Tobacco, Real Estate and Software. The least crowded are Food Producers, Household Products and P