Global Conservative Portfolio Positioning Intra-Quarter Update as of 10/16/2019

Reduced Asia ex-Japan Equity Exposure and Increased U.S. Equity Allocation

We have reduced exposure to Asian equities (primarily Emerging Asia) in the Global Conservative strategy and allocated the proceeds across our U.S. large-cap equity sector exposures.  We see the outlook for our favored U.S. sectors as more attractive than the opportunities in Emerging Asia, given dimming economic prospects and more normalized valuations for that overseas market segment.  Trade tensions between the U.S. and China remain a significant headwind for the Emerging Asian economies, and we believe the potential for a broad resolution to these tensions has diminished. The most likely scenario, in our view, is a limited deal that is unlikely to reverse the economic headwinds that have been set in motion, particularly in Emerging Asia, as businesses have adjusted their investment plans in the face of long-term trade uncertainty and a more mature Chinese economy.  Meanwhile, valuations of Emerging Asian equities have risen this year, reducing the attractiveness of the risk/reward tradeoff in the region relative to our favored U.S. sector exposures.

Reduction of Asia ex-Japan Allocation: We had increased our exposure to Asia ex-Japan equities in Q3 2018.  At the time, Emerging Asia equities traded at very low valuations, which we viewed as attractive given that a large proportion of Emerging Asia is comprised of high-growth Information Technology, Communication Services and Consumer Discretionary firms. Since reaching a trough in December 2018, we have witnessed Emerging Asia equity valuations expand to more normal levels (both with respect to EM Asia’s historical valuations and relative to global developed-market equity valuations).  Over that same time period, the economic impact of tariffs and trade uncertainty has weighed on Emerging Asia economies as well as the earnings power of Emerging Asia equities.  We see those impacts continuing given the tariffs in place today and a likely-limited deal going forward.

Add to Existing U.S. Allocations: While the U.S. economic expansion continues to mature, the consumer remains a source of relative strength that should support continued expansion. Selective U.S. equity sectors are positioned well for moderate economic growth.  For example, Consumer Discretionary and Consumer Staples Sectors provide balanced exposure to the U.S. consumer.  The Communication Services Sector is benefiting from secular shifts toward digital advertising and media consumption, as well as a technology cycle upgrade to 5G wireless networks. Information Technology companies should benefit as businesses are likely to continue investing in enterprise technology CapEx to improve productivity and expand margins in an extended moderate economic growth environment. Health Care can provide stable and outsized earnings growth in this type of environment, and leading biotech and pharma companies have robust pipelines that can fuel acceleration in earnings growth. The Utilities Sector provides a source of relative earnings and stock price stability as economic growth shows signs of modest deceleration and equity market volatility has increased.

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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 Conservative 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.