Senior portfolio manager Alessio de Longis has been ramping up its $1.1 billion Invesco Global Allocation Fund's risk asset allocation over the past three months。Now, he is gradually reducing those allocations and returning to safe assets.。

The manager's flagship fund has outperformed 80% of its peers this year。He changed tack after a series of stronger-than-expected economic data sparked expectations that Fed officials would continue to raise rates for longer。Amid souring investor sentiment, de Longis is dumping stocks, turning to bonds and becoming less bearish on the dollar。

Sure enough, on Wednesday Fed Chairman Powell warned that the peak of interest rates may be higher than expected, if necessary will speed up the rate hike, the market interest rate bet sharply upward, the probability of a 50 basis points rate hike in March over the 25 basis points rate hike, some analysts predict a rate hike to 6%。

Risk aversion has swept the market in recent weeks as U.S. Treasury yields have soared and U.S. stocks have given back January gains。Given that the market currently predicts that the U.S. federal funds rate will break through 5 in July 2023..4 per cent, compared with a forecast peak of 5 per cent at the beginning of the year, and de Longis no longer believes the Fed will stop raising rates anytime soon.。

De Longis, who has led the Global Allocation Fund since 2019, said: "We are back to where we were last summer, when inflation unexpectedly rose and the Fed very clearly communicated that 'we are not done yet."。"For the past three months, we have wanted to see signals of a pause in rate hikes.。"

While the Invesco Global Allocation Fund has returned about 5% this year as of Friday, ahead of peers such as the T Rowe Price Global Allocation Fund, American Funds Global Balanced Fund and BlackRock Global Allocation Fund, it still lags behind the S & P 500 5.7% increase。

de Longis and his team now expect the Fed to raise rates by another 75 basis points, up from an estimated 50 basis points at the start of the year.。relative to bonds, they again reduced their holdings of stocks, while exposure to the dollar has shifted from underweight to neutral。In fixed-income products, they bet on longevity, favoring investment-grade bonds and government bonds.。

He said inflation shocks have led to policy repricing, which provides ample reason to reconfigure portfolios in a defensive manner。

For a while, de Longis's view that the economy may be on the verge of a soft landing appeared to be paying off, especially as risk assets rallied earlier this year, and his fund rose nearly 7 percent in January.。

However, adverse signals began to emerge。De Longis said the University of Michigan's consumer confidence index was stronger than expected in early February, suggesting price pressures have not abated as quickly as expected.。

But the data that ultimately prompted de Longis to take the defensive is the core personal consumption expenditure (PCE) index.。"We know that this is one of the data that the Fed is most concerned about," he said.。"The latest PCE data suggests that inflation is not falling and that money is actually being printed more than expected.。"

Despite the reduction, de Longis stuck with holdings in developed-country stocks outside the United States, particularly in Europe, as slowing geopolitical risks in the region brought greater upside.。He is moving away from financial, industrial and materials stocks in favor of health care, essential goods and technology stocks with "defensive characteristics" such as high margins and strong balance sheets.。

In bonds, he reduced his holdings of riskier assets such as high-yield bonds and emerging market bonds.。

"The stock market is not pricing in a recession," he said.。"If inflation persists, it will take longer to maintain austerity than initially envisaged, and the risk of recession rises."。"