Global Balanced portfolio positioning intra-quarter update as of 9/20/2021

Adjusted U.S. large-cap sector exposure incrementally for evolving economic cycle

September 20, 2021

Actions and Overview:

  • Added to existing U.S. Information Technology equity sector ETF holding
  • Trimmed U.S. Energy equity sector ETF holding

We have adjusted U.S. equity sector exposures within our Global Balanced strategy to further emphasize mid-phase rather than early-phase sectors as we anticipate continued evolution of the economic cycle from rapid expansion to more normalized recovery.  A variety of economic indicators point to significant progress in the economic recovery.  In Q2 2021, for example, GDP reached a new high, and BEA’s measure of corporate profits was +16% above pre-pandemic levels. We expect to see further progress in the economic cycle over the next 12 to 18 months.  In our view, this economic environment will be characterized by above-trend-but-decelerating growth, which is typical as the economy shifts from recovery to expansion. We also expect the economic transition from recovery to expansion should see sector leadership shift from early-phase cyclicals to mid-phase sectors that can benefit from both cyclical and secular growth.


Added to existing U.S. Information Technology equity sector ETF holding:

  • We believe the U.S. Information Technology sector will continue to benefit from economic growth and experience less deceleration of revenue and earnings growth than other economically-sensitive sectors, given strong secular demand and other sector fundamentals.
  • Economic data indicates that current business capex spending is strong and continues to be directed to tech hardware and software, amid a need for greater productivity as economic growth slows.
  • We believe U.S. consumer strength, backed by over $2 tril. in above-trend savings during the pandemic, will benefit key areas of sector as the economy shifts from recovery to expansion, including payment processors and mobile device makers.
  • These fundamental factors should, in our view, translate into durable, above-market earnings growth for the U.S. Information Technology sector in the coming quarters.
  • While the sector has an above-market P/E valuation, its free cash flow yield is in line with the S&P 500, and its strong balance sheets and profitability give us comfort in adding to the sector at current valuations.

Trimmed U.S. Energy equity sector ETF holding:

  • The U.S. Energy sector has recently benefitted from oil & gas demand out-pacing supply, but we expect oil demand growth will decelerate with slowing economic growth in 2022, while more supply is set to come online.
  • At the same time, we expect elevated commodity prices and operating cost cuts will continue to drive the Energy sector earnings recovery over the next few quarters, even as relative valuations remain at record-low levels.
  • Balancing these factors, we believe maintaining an allocation to the sector will allow portfolios to benefit if COVID-19 headwinds dissipate and/or economic growth or inflation surprise to the upside in the near term.

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.

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Portfolio positioning intra-quarter
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