Global Balanced portfolio outlook, positioning, and attribution as of 6/30/2021
June 30, 2021
Outlook
- We expect the rapid global economic recovery to shift to a more normalized economic expansion, led by a surge in consumer spending and business investment alongside the global vaccine rollout and declining coronavirus cases.
- We anticipate continued positive equity returns in the coming quarters, as earnings growth should offset valuation compression, which is typical in a recovery, but we believe sector selection will be crucial in the period ahead.
- Internationally, the prospects for Europe’s economic recovery have improved materially as the EU vaccination rollout accelerated in Q2, and we believe European GDP growth is likely to rebound sharply in the second half of 2021 as lockdown measures are eased.
- Even though economic and market risks remain, including potential for higher interest rates and a deceleration in growth rates, we believe the global economic recovery will continue to progress and an overweight of select economically-sensitive areas of the market is appropriate.
- The strong economic and labor market rebounds should quicken, in our view, the timeline for monetary policy normalization, which could lead to higher interest rates in the coming quarters.
Portfolio Positioning
- In Q2, we began to make adjustments to and within more economically-sensitive allocations in anticipation of a shift from rapid economic recovery to sustained expansion.
- In U.S. large-cap equity allocations, we have increased our exposure to the Information Technology and Financials sectors, which we believe will benefit from positive secular tailwinds and a potential rise in interest rates, respectively.
- We reduced exposure to the U.S. Industrials sector, which may see less pent-up demand going forward than in prior cyclical recoveries, and also eliminated a U.S. small-caps allocation.
- We remain underweight international equities overall, but have increased our exposure to Europe and maintain an overweight of Emerging Asian equities.
- Given our positive economic outlook and the prospect of a continued rise in interest rates, we maintain a modest overweight of equities and underweight of fixed-income, and within the fixed-income allocation, we maintain an overweight to investment-grade corporate bonds and a lower average duration than the benchmark to manage interest rate risk.
Q2 Attribution
Positive Contributors:
Overweight
- Investment-Grade Corporate Bonds
Underweight
- Fixed Income
- U.S. Consumer Staples Equities
Negative Contributors:
Overweight
- U.S. Small-Cap Equities
- U.S. Financials Equities
Underweight
- Long-Term Fixed-Income Securities
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.
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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 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.