Global Conservative portfolio outlook, positioning, and attribution as of 12/31/2021
December 31, 2021
Outlook
- We expect the global economic expansion to continue into 2022, with a mix of consumer spending, business investment, and inventory build driving slower but healthy economic growth.
- In our view, the global economic expansion should continue to support positive equity returns, but we believe shifting economic trends and market volatility will make active sector and international allocation key to investment outcomes in the coming quarters.
- We believe that international developed economies, especially Europe and Japan, are likely to benefit from recovery tailwinds including healthy labor markets and strong household balance sheets, while emerging market economies continue to struggle with higher levels of inflation and a weaker rebound in labor markets.
- Even though economic and market risks remain, including decelerating economic growth, more restrictive monetary policy to combat inflation, and the potential for higher interest rates, we believe the global economic recovery will continue to progress and an overweight of select economically-sensitive U.S. sectors is appropriate.
- The strong economic and labor market rebounds, along with higher nominal wage growth and inflation, appear to have accelerated the timeline for monetary policy normalization, which we believe should lead to higher interest rates in 2022.
- We anticipate rising interest rates will be a headwind for fixed income securities and certain equity sectors, while providing an earnings growth catalyst for other sectors, like Financials.
Portfolio Positioning
- In U.S. large-cap equity allocations, we are emphasizing sectors with secular earnings growth drivers, like Information Technology and Communication Services, which we expect will see less deceleration in revenue and earnings growth than more cyclical sectors, and sectors with positive earnings outlooks trading at a discount to the market, like Financials and Health Care.
- We maintain select cyclical exposures which should continue to benefit from the current global economic expansion, while avoiding traditional defensive sectors in the U.S. such as Utilities and Consumer Staples.
- We remain underweight international equities, as a whole, and recently further reduced our exposure to Emerging Asia, moving to an underweight of China, and shifted to an overweight of Developed Asia, where we see greater near-term economic upside from factors like improved vaccination trends.
- Within our fixed-income allocation, we continue to emphasize shorter duration and investment-grade corporate bonds, where we have recently shortened the average maturity of our exposure.
Q4 Attribution
Positive Contributors:
Overweight
- U.S. Consumer Discretionary Equities
- U.S. Health Care Equities
Underweight
- U.S. Information Technology Equities
- Emerging Asia Equities
Negative Contributors:
Overweight
- U.S. Communication Services Equities
- U.S. Financials Equities
- Japan Equities
Underweight
- Long-Term Fixed-Income Securities
Attribution Analysis is relative to the Global Conservative benchmark and was current as of the date specified in this presentation.
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 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.