U.S. Sector Portfolio Positioning Intra-Quarter Update as of 03/14/2019

Modestly Reduced Economic Sensitivity of the Portfolio; Adjusted Sector Exposures to Keep Aligned with Evolving Macroeconomic Outlook

We have made several adjustments to modestly reduce the economic sensitivity of the U.S. Sector portfolio and keep sector exposures aligned with the continued evolution of our macroeconomic outlook. We expect moderate economic growth to continue in the U.S., but our outlook contemplates a deceleration in growth as the cycle continues to mature. We have already seen signs of slowing manufacturing and construction activity in 2019. Further, while we expect the consumer will remain a driver of U.S. economic growth, we believe it is unlikely that consumption growth can continue as strongly as it has in recent years. Consumer spending growth revisited cyclical highs in mid-2018, and investor expectations remain high, even as growth has begun to moderate. The portfolio adjustments described below reflect our view that U.S. economic growth will remain positive, while decelerating modestly, as well as sector-specific implications of our outlook. We are also taking the opportunity to conduct a full rebalance of portfolios.

Reduction of economic sensitivity: First, we have reduced exposure to the economically-sensitive Financials Sector and added a new exposure to the Utilities Sector. Given continued maturing of the U.S. economic cycle, we believe a modest shift from economically-sensitive to more defensive sector positioning is warranted. Further, given our economic outlook and the increase in interest rates over the past year, we see the potential for and likely impact of a continued rise in rates as diminished, which we believe reduces risks to the Utilities Sector. The addition of Utilities should increase potential downside protection in the event of continued market volatility. At the same time, while our fundamental thesis for owning Financials continues to play out, tailwinds for the sector from lower taxes and rising interest rates have subsided somewhat.

Reallocation within more economically-sensitive exposure: Next, within the portfolio’s more economically-sensitive sector exposures, we reduced the Consumer Discretionary Sector allocation and added to the allocations for the Communication Services and Information Technology Sectors. Consumer Discretionary has been the best-performing U.S. sector since the tax cut package was outlined in November 2017, but the likelihood of slower consumer spending growth reduces our conviction in the sector. In contrast, we see continued opportunity in Information Technology and Communication Services as the economic cycle matures, with enterprise spending on technology infrastructure to drive efficiencies and more spending on advertising to sustain consumer demand.

Reallocation within less economically-sensitive exposure: Finally, within the portfolio’s existing exposure to less economically-sensitive sectors, we reallocated a portion of the Health Care Sector exposure to the Consumer Staples Sector. The portfolio remains overweight to Health Care, and we continue to view the economic fundamentals of Health Care favorably. However, we believe a reduction in the Health Care overweight was warranted as political risk from a growing range of cost reduction proposals has spread across multiple industries in the sector. Meanwhile, the Consumer Staples Sector offers similar stability to Health Care, as Staples benefits from consumer strength without dependence on more discretionary spending, and Staples faces reduced interest risk in the current environment.

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.

Global Equity Portfolio Positioning Intra-Quarter Update as of 03/14/2019

Modestly Reduced Economic Sensitivity of the Portfolio; Adjusted U.S. Sector Exposures to Keep Aligned with Evolving Macroeconomic Outlook

We have made several adjustments to modestly reduce the economic sensitivity of the Global Equity portfolio and keep U.S. sector exposures aligned with the continued evolution of our macroeconomic outlook. We expect moderate economic growth to continue in the U.S., but our outlook contemplates a deceleration in growth as the cycle continues to mature. We have already seen signs of slowing manufacturing and construction activity in 2019. Further, while we expect the consumer will remain a driver of U.S. economic growth, we believe it is unlikely that consumption growth can continue as strongly as it has in recent years. Consumer spending growth revisited cyclical highs in mid-2018, and investor expectations remain high, even as growth has begun to moderate. The portfolio adjustments described below reflect our view that U.S. economic growth will remain positive, while decelerating modestly, as well as sector-specific implications of our outlook. We are also taking the opportunity to conduct a full rebalance of portfolios.

Reduction of economic sensitivity: First, we have reduced exposure to the economically-sensitive U.S. Financials Sector and added a new exposure to the U.S. Utilities Sector. Given continued maturing of the U.S. economic cycle, we believe a modest shift from economically-sensitive to more defensive sector positioning is warranted. Further, given our economic outlook and the increase in interest rates over the past year, we see the potential for and likely impact of a continued rise in rates as diminished, which we believe reduces risks to the Utilities Sector. The addition of U.S. Utilities should increase potential downside protection in the event of continued market volatility. At the same time, while our fundamental thesis for owning Financials continues to play out, tailwinds for the sector from lower taxes and rising interest rates have subsided somewhat.

Reallocation within more economically-sensitive U.S. exposure: Next, within the portfolio’s more economically-sensitive U.S. sector exposures, we reduced the Consumer Discretionary Sector allocation and added to the allocations for the Communication Services and Information Technology Sectors. Consumer Discretionary has been the best-performing U.S. sector since the tax cut package was outlined in November 2017, but the likelihood of slower consumer spending growth reduces our conviction in the sector. In contrast, we see continued opportunity in Information Technology and Communication Services as the economic cycle matures, with enterprise spending on technology infrastructure to drive efficiencies and more spending on advertising to sustain consumer demand.

Reallocation within less economically-sensitive U.S. exposure: Finally, within the portfolio’s existing exposure to less economically-sensitive U.S. sectors, we reallocated a portion of the Health Care Sector exposure to the Consumer Staples Sector. The portfolio remains overweight to Health Care, and we continue to view the economic fundamentals of Health Care favorably. However, we believe a reduction in the Health Care overweight was warranted as political risk from a growing range of cost reduction proposals has spread across multiple industries in the sector. Meanwhile, the Consumer Staples Sector offers similar stability to Health Care, as Staples benefits from consumer strength without dependence on more discretionary spending, and Staples faces reduced interest risk in the current environment.

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’ Global Equity 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.

Global Balanced Portfolio Positioning Intra-Quarter Update as of 03/14/2019

Modestly Reduced Economic Sensitivity of the Portfolio; Adjusted U.S. Equity Sector Exposures to Keep Aligned with Evolving Macroeconomic Outlook

We have made several adjustments to modestly reduce the economic sensitivity of the Global Balanced portfolio and keep U.S. equity sector exposures aligned with the continued evolution of our macroeconomic outlook. We expect moderate economic growth to continue in the U.S., but our outlook contemplates a deceleration in growth as the cycle continues to mature. We have already seen signs of slowing manufacturing and construction activity in 2019. Further, while we expect the consumer will remain a driver of U.S. economic growth, we believe it is unlikely that consumption growth can continue as strongly as it has in recent years. Consumer spending growth revisited cyclical highs in mid-2018, and investor expectations remain high, even as growth has begun to moderate. The portfolio adjustments described below reflect our view that U.S. economic growth will remain positive, while decelerating modestly, as well as sector-specific implications of our outlook. We are also taking the opportunity to conduct a full rebalance of portfolios.

Reduction of economic sensitivity: First, we have reduced exposure to the economically-sensitive U.S. Financials equity sector and added a new exposure to the U.S. Utilities equity sector. Given continued maturing of the U.S. economic cycle, we believe a modest shift from economically-sensitive to more defensive sector positioning is warranted. Further, given our economic outlook and the increase in interest rates over the past year, we see the potential for and likely impact of a continued rise in rates as diminished, which we believe reduces risks to the Utilities Sector. The addition of U.S. Utilities should increase potential downside protection in the event of continued market volatility. At the same time, while our fundamental thesis for owning Financials continues to play out, tailwinds for the sector from lower taxes and rising interest rates have subsided somewhat.

Reallocation within more economically-sensitive U.S. equity exposure: Next, within the portfolio’s more economically-sensitive U.S. equity sector exposures, we reduced the Consumer Discretionary Sector allocation and added to the allocations for the Communication Services and Information Technology Sectors. Consumer Discretionary has been the best-performing U.S. sector since the tax cut package was outlined in November 2017, but the likelihood of slower consumer spending growth reduces our conviction in the sector. In contrast, we see continued opportunity in Information Technology and Communication Services as the economic cycle matures, with enterprise spending on technology infrastructure to drive efficiencies and more spending on advertising to sustain consumer demand.

Reallocation within less economically-sensitive U.S. equity exposure: Finally, within the portfolio’s existing exposure to less economically-sensitive U.S. equity sectors, we reallocated a portion of the Health Care Sector exposure to the Consumer Staples Sector. The portfolio remains overweight to Health Care, and we continue to view the economic fundamentals of Health Care favorably. However, we believe a reduction in the Health Care overweight was warranted as political risk from a growing range of cost reduction proposals has spread across multiple industries in the sector. Meanwhile, the Consumer Staples Sector offers similar stability to Health Care, as Staples benefits from consumer strength without dependence on more discretionary spending, and Staples faces reduced interest risk in the current environment.

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’ 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.

Global Balanced Portfolio Outlook, Positioning, and Attribution as of 12/31/2018

Outlook

  • Global economic growth should continue in 2019, despite headwinds from trade disputes, with positive momentum in the U.S. and mixed economic trends internationally.
  • Strong earnings growth in 2018 and the recent market pullback make U.S. valuations attractive amid moderate economic growth.
  • European GDP growth should stay positive in 2019, but major E.U. economies are seeing growth slow; while Asia’s economic outlook is mixed, Asian markets stand to benefit as trade tensions ease.
  • Longer-term U.S. interest rates should reverse some of their recent pullback as investors’ concerns over economic growth abate.

Portfolio Positioning

  • We favor U.S. equity sectors with both cyclical and secular tailwinds, like Information Technology and Communication Services, while avoiding more economically-cyclical sectors, like Industrials and Energy.
  • We continue to underweight European equities, where economic growth trends are unlikely to improve in the near-term; we see better international opportunities in Asian equities, where declining relative valuations have improved the region’s risk/reward profile.
  • Emphasis of short-duration fixed income securities and avoidance of U.S. Utilities and Real Estate equities limit interest rate risk.

Q4 Attribution

Positive Contributors:

Overweight
• U.S. Consumer Staples Equities
• U.S. Health Care Equities

Underweight
• U.S. Energy Equities
• U.S. Industrials Equities

Negative Contributors:

Underweight
• U.S. Utilities Equities
• U.S. Treasury Securities
• South & Central American 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.
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.  

Global Equity Portfolio Outlook, Positioning, and Attribution as of 12/31/2018

Outlook

  • Global economic growth should continue in 2019, despite headwinds from trade disputes, with positive momentum in the U.S. and mixed economic trends internationally.
  • Strong earnings growth in 2018 and the recent market pullback make U.S. valuations attractive amid moderate economic growth.
  • While European GDP growth should remain positive in 2019, major E.U. economies are seeing growth slow in the face of structural, cyclical, and political challenges.
  • Asia’s economic outlook is mixed, as signs of slow but improving economic trends in Japan contrast with economic deceleration in China, but Asian markets stand to benefit as trade tensions ease.

Portfolio Positioning

  • We favor U.S. sectors with both cyclical and secular tailwinds, like Information Technology and Communication Services, while avoiding more economically-cyclical and interest rate-sensitive sectors.
  • An underweight to Europe reflects our expectation that economic growth trends are unlikely to improve in the near-term.
  • We see better international opportunities in Asia, where modest growth expectations and low relative equity valuations have improved the region’s risk/reward profile.

Q4 Attribution

Positive Contributors:

Overweight
• U.S. Consumer Staples
• U.S. Health Care

Underweight
• U.S. Energy
• U.S. Industrials

Negative Contributors:

Underweight
• U.S. Utilities
• South & Central America

Attribution Analysis is relative to the MSCI ACWI (Net) Index 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’ Global Equity 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.