Global Conservative portfolio outlook, positioning, and attribution as of 06/30/2023
June 30, 2023
Outlook
- We continue to see late-cycle economic conditions in the U.S. and in other developed regions abroad, with ongoing deceleration in key leading economic data, despite continued strength in headline employment and personal consumption in the U.S.
- Our economic cycle analysis suggests that the delayed effects of monetary policy tightening, tightening lending standards, and the rolling over of the corporate profit cycle in the U.S. are all likely to be felt more acutely in coming quarters.
- In this evolving environment, we see significant risk to corporate earnings for the most economically sensitive parts of the markets.
- We expect earnings growth will continue to vary significantly across U.S. sectors in 2023, as is typical in the later stages off an economic cycle, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- Internationally, Europe has entered a technical recession, but we believe it still faces significant risks from monetary and fiscal tightening with a smaller savings cushion to support consumers than the U.S, and we also expect slowing growth to present headwinds for economically cyclical emerging markets, while developed Asia is a relative bright spot.
- Seeing reduced risk to fixed income returns and late economic cycle risks to equities, we maintain an overweight of fixed income in balanced portfolios.
Portfolio Positioning
- We are avoiding early-phase cyclical U.S. sectors and, instead, are emphasizing sectors that we expect will see less deterioration in margins and earnings growth as economic growth slows.
- We are overweight the late-phase, more defensive U.S. sectors including Health Care, Consumer Staples, and Utilities.
- We maintain allocations to the U.S. Information Technology, Communication Services, and Consumer Discretionary sectors, which we believe are attractive at this stage of the cycle given their lower revenue volatility and more secular-oriented growth profiles versus more cyclical sectors.
- We remain underweight to international equities, as a whole, including underweights of Europe and emerging markets, but we maintain an overweight of developed Asia, where we see the greatest potential for economic resilience abroad.
- Within fixed income allocations, we are emphasizing intermediate and longer-term securities that should benefit from declining interest rates, and we have moved to an overweight of Treasury exposure, which we believe could benefit amid a flight to perceived safe assets.
Q2 Attribution
Positive Contributors:
Underweight
- Emerging Asia Equities
- U.S. Energy Equities
- U.S. Financials Equities
- Western Europe Equities
Negative Contributors:
Overweight
- U.S. Utilities Equities
- U.S. Consumer Staples Equities
- U.S. Health Care Equities
Underweight
- Equities
Attribution Analysis is relative to the Global Conservative benchmark and was current as of the date specified in this presentation.
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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 Conservative 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.