Global Equity portfolio outlook, positioning, and attribution as of 3/31/2021
March 31, 2021
- We expect the global economic recovery to continue in 2021, amid continued U.S. consumer strength and business investment as COVID-19 vaccinations help release pent-up demand in certain parts of the economy.
- We anticipate positive equity market returns this year as rising earnings expectations for cyclical stocks should offset a likely decline in valuation multiples, which is typical early in a cycle.
- Internationally, European economic growth is likely, in our view, to be materially lower than that of the U.S. in Q1 due to renewed lockdown measures, while economic data has shown that Emerging Asia leads other regions in its economic recovery, which should support positive GDP and earnings growth in 2021.
- Even though economic and market risks remain, including potential for higher interest rates and higher taxes in the U.S., we believe the global economic recovery will continue to progress and an overweight of economically-sensitive sectors is appropriate.
- Sector allocation will be increasingly important in the U.S. in 2021, in our view, as the ongoing recovery and expansion drive a rebound in earnings for cyclical sectors and areas of the economy hardest hit by the pandemic, such as retail, travel, and leisure.
- Given our outlook for the global economic recovery to continue in 2021, we maintain exposures to more economically-sensitive areas of the markets, including Emerging Asia and U.S. Financials, Industrials, Energy, and small-cap equities.
- Over the past year, we have reduced exposure to less economically-sensitive areas of the market such as the large-cap U.S. Consumer Staples and Utilities sectors.
- We maintain an overweight of Emerging Asian equities, which provides exposure to favorable sector composition and positive secular trends, but at a discount to the U.S., while we maintain an underweight to Europe and Japan.
- U.S. Large-Cap Energy
- U.S. Large-Cap Financials
- U.S. Large-Cap Industrials
- U.S. Large-Cap Information Technology
- North America ex-U.S.
- U.S. Large-Cap Materials