U.S. Sector portfolio outlook, positioning, and attribution as of 6/30/2020
June 30, 2020
- We believe a U.S. economic recovery is underway, and that it is tracking ahead of our expectations from early Q2.
- U.S. retail spending data is improving faster than retail traffic data, and U.S. consumers have amassed significant savings that we believe could fuel continued consumption growth.
- Over the intermediate term, we believe significant fiscal and monetary support for consumers and businesses, as well as attractive interest rate-adjusted equity valuations, should set the stage for continued equity market gains during the recovery.
- Risks to the economic and market recovery remain, including the potential for resurgent infection rates to slow or derail the recovery, a slowdown in consumer spending after record fiscal stimulus boosted trends, and for non-COVID issues, like the 2020 election, to impact investor sentiment.
- We have continued to shift away from the defensive portfolio positioning we had in place at the start of the COVID-19 crisis, while seeking to balance opportunity against ongoing medical, political, and economic risks.
- We increased economically-sensitive Financials and Industrials allocations and maintained the Energy allocation established in late Q1, each of which we expect to benefit from economic recovery.
- Technology-related sector exposures are warranted, in our view, regardless of the exact shape of the economic recovery, given the secular tailwinds benefiting these sectors.
- We reduced defensive exposures by trimming the Health Care allocation and eliminating the Utilities sector allocation, but believe continued uncertainty in this period of economic inflection still warrants exposure to defensive sectors.
- Communication Services
- Real Estate
- Health Care
- Consumer Staples
- Information Technology