Global Balanced portfolio positioning intra-quarter update as of 7/15/2021

Reduced the portfolio’s expected interest rate sensitivity by adjusting investment-grade corporate bond exposures

July 15, 2021

Actions and Overview:

Shortened the average duration/maturity of the portfolio’s fixed-income allocation; maintained corporate overweight

  • Eliminated the portfolio’s long-term investment-grade corporate bond ETF holding
  • Added to an existing intermediate-term investment-grade corporate bond ETF holding

We continue to see prospects for strong global GDP growth, particularly in the U.S., in coming quarters and therefore continue to overweight equities and underweight fixed income in our balanced strategies relative to their benchmarks. Similarly, we continue to emphasize investment-grade (IG) corporate bonds over Treasury securities within our fixed income allocations.

In recent months, longer-term bond yields have moved lower, reaching levels that we believe are unsustainable over the next 6-18 months given a strong real growth environment and above-average, yet contained, inflation. The move lower in long-term rates (10+ years) in particular over the last few months has improved the risk-reward of shortening duration in our view. We took this opportunity to exit our long-duration IG corporate bond position and add to existing intermediate duration corporate bond exposure. After these trades, our fixed income allocations remain overweight IG corporate bonds and have an even shorter duration relative to the U.S. Government/Credit Index, even as the portfolio’s income profile is little changed.


Eliminated the portfolio’s long-term investment-grade corporate bond ETF holding:

  • The general flattening of yield curves in recent months has caused longer-duration bonds to outperform.
  • We view the current levels and shape of the IG corporate bond yield curve as unsustainable over the next 6-18  months, given prospects for robust real growth and above-average, yet contained, inflation.
  • A potential re-steepening of the IG corporate bond yield curve exposes longer-duration IG corporate bonds to interest rate risk, even as holders of longer duration corporate bonds are now being compensated less for that interest rate risk as yield curves have flattened.

Added to an existing intermediate-term investment-grade corporate bond ETF holding:

  • Intermediate IG corporate bonds currently offer about 80 basis points more yield than similar-term nominal Treasury bonds, and we believe these spreads will likely persist and lead to corporate bond outperformance in a benign credit environment.
  • Additionally, as longer-term bond yields have fallen, the IG corporate yield curve has flattened and intermediate IG corporate bonds now offer similar yields to longer-term IG corporate bonds.
  • As the economy continues to improve, we expect yield curves will eventually re-steepen and shift higher, consistent with prior recoveries and expansions, allowing shorter-duration corporate bonds to outperform vs. longer-duration bonds.

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.

Portfolio outlook, positioning, and attribution
Portfolio positioning intra-quarter
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