Real estate shares suffered mostly due higher interest rates and analyst downgrades.

European shares fared better this week than last—even outperforming U.S. equities—as easing trade war tensions allowed investors to contemplate buying opportunities (especially among more defensive sectors). However, Brexit worries hurt UK equities. Japanese shares notably outperformed as well, also benefiting from the prospect of a better trade outlook. Emerging markets improved—particularly Turkey, which benefited from positive actions taken by its central bank. However, Latin America hit some speedbumps: Argentina underperformed as the IMF said it would delay its monthly disbursement until current negotiations regarding an advancement of the credit line concludes, and Brazilian markets lagged due to uncertainty related to the country’s presidential election in October.

In the fixed-income markets, shorter-duration securities and high-yield corporate debt outperformed longer-duration Treasuries as rates rose. Emerging markets debt also outperformed after many emerging markets currencies appreciated; however, the Argentinian peso and Brazilian real experienced downward pressure.

GAIN: Active Asset Allocation

Global stocks staged a rebound last week, following a few weeks of heightened volatility. Large-caps outperformed small-caps, while foreign equities topped U.S. stocks. However, we believe those trends are unlikely to continue and are maintaining an emphasis on small-company stocks and domestic equities in the portfolios.

Growth stocks pushed higher after giving back some of their recent gains in early September. We are evaluating the growth-oriented technology sector, looking for signs of valuations becoming stretched.

Overall, we expect more volatility and profit taking in equity markets over the next few weeks. As a result, the portfolios’ equity allocations were adjusted to reduce exposure to the momentum factor and to exponential technology. Those assets were reallocated to our equal weight S&P 500 position.

Related: Strong Economy and Jobs Market As September Begins

Meanwhile, bonds were flat for the week even as rates edged higher. High-yield bonds and corporate credits led the way after losing some ground the previous week. Overall, we continue to maintain our barbell positioning in the fixed-income portfolios—with high-yield credit and real estate holdings balanced by long-term Treasuries. That said, we are taking steps to limit overall portfolio volatility, as we expect some choppiness in the equity markets. For example, we reduced some of our credit and preferred stock exposure last week.

PROTECT: Risk Assist

Global equity markets had a good week as investors mostly shook off trade concerns and focused on generally positive economic news. As was the case in the Gain portfolios, we reduced our exposure to momentum stocks and the exponential technology sector due to the potential for higher volatility and profit-taking in the equity markets. Likewise, in the bond portfolios, we reduced some of our credit and preferred stock exposure in an effort to limit overall portfolio volatility if the equity markets become choppy going forward.

Looking ahead, we continue to evaluate when it makes sense to re-enter emerging markets and broad-based international equities.

SPEND: Real Spend

Global stocks outpaced bonds last week, providing a tailwind to the Real Spend portfolios’ performance. Global stocks are now up 3% year-to-date, while broad-based bonds are down 1.6%.

Because Real Spend is currently allocated to 11 quarters of spend across all models, the portfolios have had a slightly larger allocation to global equity markets this quarter.

Consumer Price Index data released Thursday showed headline inflation in August rising by 2.7% on a year-over-year basis—slightly below economists’ expectations. Market expectations of longer-term inflation barely moved on the news, continuing to hover around 2.4%.

In the yield space, convertible bonds and domestic dividend-paying stocks were the top performers for the week. Financials and high-yielding, small-cap-focused REITS performed the poorest.

This article was contributed by Horizon Investments, a participant in the ETF Strategist Channel.