Global Balanced portfolio outlook, positioning, and attribution as of 6/30/2022
June 30, 2022
- The U.S. and global economic cycles continue to progress rapidly. We expect the U.S. economic expansion to extend into 2023, but we have seen, as anticipated, signs of slowing growth in economic data.
- We believe the Federal Reserve’s recent shift toward more aggressive monetary tightening has exacerbated risks that the economic cycle could progress toward a late-phase slowdown.
- In this evolving environment, we now see increased risk to corporate earnings and, more broadly, to the performance of particularly economically sensitive parts of the markets.
- Internationally, we believe the deceleration in global economic growth is likely to favor developed markets over emerging markets, but Europe faces distinct economic risks related to inflation and slower trade and manufacturing activity.
- While risks to equities have increased, risks to fixed income have diminished, in our view, following the sharp rise in interest rates this year, as slowing economic growth and a likely easing of inflation should reduce upward pressure on intermediate and longer-term interest rates, and a Fed-induced slowdown could ultimately push down longer-term interest rates.
- We have moved to a significant underweight of early-phase U.S. sectors, eliminating Financials exposure and continuing to avoid Industrials, Materials, and Real Estate.
- We have increased our overweight of the mid-phase U.S. Information Technology and Communication Services sectors, which we believe will see less deceleration in revenue and earnings growth than more cyclical sectors, and increased exposure to late-phase, defensive U.S. sectors by adding to our Health Care overweight and adding a new Utilities allocation.
- We remain underweight international equities, and especially emerging markets, and we have continued to shift developed market exposure from Europe to Developed Asia, where we see positive factors like pent up recovery potential and improving trade.
- Given shifting risk profiles, we have added to fixed income and eliminated an overweight of equities. Within fixed income allocations, we have lengthened duration (increased interest rate sensitivity), reduced our overweight to corporate credit, and added to Treasury exposure.
- U.S. Health Care Equities
- U.S. Information Technology Equities
- Long-Term Fixed Income
- Investment Grade Corporate Bonds
- Fixed Income
- U.S. Consumer Staples Equities
- Treasury 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.