Global Equity portfolio outlook, positioning, and attribution as of 3/31/2022
March 31, 2022
- We see continuing cyclical progression toward a healthy-but-slower-growth economic expansion, driven by a mix of consumer and business strength.
- Economic and geopolitical risks have increased over the past quarter, including elevated inflation, tightening monetary policy, and spiking oil prices tied to the Russian invasion of Ukraine, but we do not expect these issues to derail economic growth in 2022.
- As economic growth decelerates, we expect U.S. equity market returns in 2022 to be driven primarily by earnings growth, partly offset by further multiple contraction.
- We expect earnings growth to vary significantly across U.S. sectors in 2022, as is typical during economic transitions, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- Internationally, we believe the deceleration in global economic growth is likely to favor developed markets over emerging markets, but Europe faces distinct economic risks from the Ukraine invasion, given its dependence on Russian energy.
- We remain overweight to the U.S., with a new overweight of Information Technology and an overweight of Communication Services, U.S. sectors which we expect will see less deceleration in revenue and earnings growth than more cyclical sectors.
- We are also emphasizing U.S. sectors trading at a discount to the market with positive earnings outlooks, like Financials, which we believe will benefit from higher interest rates, and the Health Care sector, which we expect to deliver steady earnings growth with upside from a post-COVID rebound in elective procedures.
- We have eliminated U.S. Industrials exposure, but maintain an allocation to the U.S. Energy sector, while avoiding more defensive U.S. sectors such as Utilities and Consumer Staples.
- Internationally, we remain underweight Europe and Emerging Asia, while maintaining an overweight to Developed Asia, where we see greater near-term economic upside.
- U.S. Information Technology
- Emerging Asia
- U.S. Consumer Discretionary
- North America ex-U.S.
- U.S. Consumer Staples
- U.S. Utilities