Global Balanced Portfolio Outlook, Positioning, and Attribution as of 9/30/2018

Outlook

  • The global economic outlook remains positive, bolstered by a trend of moderate economic growth in the U.S., where Q3 data reaffirmed that the U.S. consumer remains healthy.
  • European data this year has pointed to softer economic activity.
  • Japan’s personal income and business CapEx have improved and Asian equity valuations have declined markedly versus the U.S. Asia, in particular, stand to benefit if global trade tensions ease.
  • Modest inflationary pressures and a normalization of real interest rates are supporting nominal interest rates.

Portfolio Positioning

  • We favor U.S. equity sectors with both cyclical and secular tailwinds, like the new Communication Services Sector, while avoiding U.S. sectors with high economic or interest rate-sensitivity.
  • Adjustments within the strategy’s U.S. equity allocation in Q3 tied to the creation of the Communication Services Sector did not reflect a change in our outlook or underlying exposures.
  • While still underweight international equities, we modestly increased developed and emerging Asia exposure in Q3 as falling valuations this year improved the region’s risk/reward profile in our view.
  • Emphasis of short-duration fixed income securities and avoidance of U.S. Utilities and Real Estate equities limit interest rate risk.

Q3 Attribution

Positive Contributors:

Overweight
• U.S. Health Care Equities

Underweight
• Emerging Asia Equities
• U.S. Treasury Securities

Negative Contributors:

Overweight
• U.S. Consumer Staples Equities

Underweight
• U.S. Industrials Equities

Attribution Analysis is relative to the Global Balanced 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.
Attribution for Q3 2018 is based on sector categorizations in place prior to the end of September 2018. At the end of September 2018, Standard & Poor’s and MSCI reorganized their Global Industry Classification Standard (GICS) to create a new “Communication Services Sector.” This new sector combined the former Telecommunication Services Sector with media, advertising, and entertainment companies taken from the Consumer Discretionary Sector, and with certain internet and entertainment software companies taken from the Information Technology Sector.
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’ Global Balanced 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.