U.S. Sector Portfolio Outlook, Positioning, and Attribution as of 6/30/2018

Outlook

  • Recent economic data indicates a modest pickup in U.S. GDP growth, but we do not expect dynamic growth to be sustained given the progress already made in the economic cycle.
  • Stocks should perform well in this economic environment, but trade policy concerns will likely continue to contribute to market volatility, even as a full-blown trade war remains unlikely.
  • Sectors with attractive growth and stability of earnings should outperform going forward, while the most economically-cyclical sectors face risks to meeting elevated earnings expectations.
  • Upward pressure on interest rates should continue from the Fed’s measured short-term rate hikes, the recent rebound in inflation, and potential normalization of longer-term real interest rates.

Portfolio Positioning

  • Consumer Staples exposure, increased to an overweight in Q2, and an overweight to Health Care provide attractively valued earnings stability in this extended economic cycle.
  • Overweights to Consumer Discretionary and Information Technology leverage ongoing consumer strength and secular trends, including migration to digital media and payments.
  • Avoidance of Energy, Materials, and Industrials limits portfolio reliance on dynamic economic acceleration.
  • Avoidance of the Utilities and Real Estate Sectors reduces risk from rising interest rates.

Q2 Attribution

Positive Contributors:

Overweight
• Consumer Discretionary

Underweight
• Industrials

Negative Contributors:

Underweight
• Energy

Attribution Analysis is relative to the S&P 500 benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request. The most recent complete presentation can be viewed here.
Any portfolio characteristics, including position sizes and sector allocations among others, are generally averages and are for illustrative purposes only and do not reflect the investments of an actual portfolio unless otherwise noted. The investment guidelines of an actual portfolio may permit or restrict investments that are materially different in size, nature and risk from those shown. The investment processes, research processes or risk processes shown herein are for informational purposes to demonstrate an overview of the process. Such processes may differ by product, client mandate or market conditions. Portfolios that are concentrated in a specific sector or industry may be subject to a higher degree of market risk than a portfolio whose investments are more diversified.
Holdings, Sector Weightings, and Portfolio Characteristics were current as of the date specified in this presentation. The listing of particular securities should not be considered a recommendation to purchase or sell these securities. While these securities were among WestEnd Advisors’ U.S. Sector holdings at the time this material was assembled, holdings will change over time. There can be no assurance that the securities remain in the portfolio or that other securities have not been purchased. It should not be assumed that recommendations made in the future will be profitable or will equal the performance of the securities presently in the portfolio. Individual clients’ portfolios may vary. Upon request, WestEnd Advisors will provide a list of all recommendations for the prior year.