Global Conservative portfolio outlook, positioning, and attribution as of 9/30/2021
September 30, 2021
Outlook
- We expect the rapid global economic recovery to continue its shift to a more normalized economic expansion, led by a surge in consumer spending and business investment alongside the global vaccine rollout.
- In our view, the global economic expansion should support positive equity returns, but we believe shifting economic trends and market volatility will make sector and international allocations key to investment outcomes in the coming quarters.
- Internationally, the prospects for Japan’s economic recovery have improved materially as their vaccination rollout accelerated in Q3, and we believe consensus earnings growth in Japan is too pessimistic given the improving COVID backdrop and the significant upside potential from a broad reopening in the region.
- Even though economic and market risks remain, including decelerating economic growth, credit market and regulatory turbulence overseas, and 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 should, in our view, accelerate the timeline for monetary policy normalization, which could lead to higher interest rates in the coming quarters.
Portfolio Positioning
- In Q2 and Q3, we made adjustments to and within our allocations to economically-sensitive U.S. sectors in anticipation of a shift from rapid economic recovery to a more normalized expansion.
- 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.
- We have materially reduced portfolio exposure to some of the more cyclical U.S. large-cap equity sectors such as Industrials and Energy.
- We remain underweight international equities, as a whole, and recently reduced 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 recently shortened the average maturity of our exposure.
Q3 Attribution
Positive Contributors:
Overweight
- U.S. Financials Equities
- Japanese Equities
Underweight
- U.S. Industrials Equities
Negative Contributors:
Overweight
- U.S. Energy Equities
- Emerging Asian Equities
- U.S. Communication Services Equities
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.