Global Conservative portfolio positioning intra-quarter update as of 3/25/2022

Increased overweight of corporate bond exposure and modestly extended average duration of the fixed income allocation

March 25, 2022

Actions and Overview:

Shifted exposure from intermediate-term Treasury bonds to short-term high-yield corporate bonds:

  • Trimmed an intermediate Treasury bond ETF position
  • Established a new position in a short-term high-yield corporate bond ETF

Extended duration of investment grade corporate bond exposure:

  • Trimmed an intermediate-term investment grade corporate bond ETF holding
  • Established a new position in a long-term investment grade corporate bond ETF

Economic fundamentals in the U.S. remain healthy, in our view, with above-trend growth expected in 2022 and potentially into 2023. We see the near-term risk of corporate defaults as low by historical standards, and the widening of investment grade and high-yield credit spreads in recent months increased the attractiveness, in our view, of credit exposure, and particularly high-yield exposure. Further, the yield curve has flattened, even as longer-term interest rates have risen, and our analysis suggests that this cycle’s peak in long-term interest rates is likely to be lower than in previous cycles. As the economic and rate-hiking cycles progress, and the impact of pandemic-era stimulus fades, we expect economic growth to decelerate. This, along with widened long-term credit spreads, suggests an improved risk/return profile for longer-term corporate bonds. With these adjustments, portfolios retain a shorter duration than the benchmark, but now have a materially higher yield.


Shifted exposure from intermediate-term Treasury bonds to short-term high-yield corporate bonds:

  • Given our expectation for continued (though slowing) economic growth and limited near-term recession risk, we believe intermediate Treasury bonds are likely to underperform in coming quarters.
  • Monetary policy tends to drive intermediate Treasury yields, presenting risk of further negative returns if the Fed tightens more than currently expected, while we believe high-yield corporates should outperform as the Fed hikes rates, as is typical, given very healthy credit fundamentals.
  • If Fed hikes do not outpace current market expectations, we believe short-term high-yield securities could still outperform intermediate Treasuries due to their higher absolute yield and a potential narrowing of credit spreads amid ongoing economic expansion.

Extended duration of investment grade corporate bond exposure:

  • Interest rates have moved up sharply across the yield curve this year, but we believe the Fed’s launch of a hiking cycle has reduced the risk of a significant additional increase in long-term interest rates.
  • Healthy economic growth continues to provide a benign credit environment for corporate bonds, in our view, which could support narrowing credit spreads.
  • We expect decelerating growth as the economic cycle progresses should limit further upside risk for longer-term interest rates and eventually support a decline in long-term rates; we have historically seen that longer-duration investment grade corporates tend to outperform as the economy enters slower growth phases.
  • In our view, if the Fed raises rates less than expected in coming quarters, longer-term corporate bonds should benefit more from a general pullback in rates across the overall yield curve, while also yielding more than short or intermediate-maturity corporates.

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.

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