Global Equity portfolio outlook, positioning, and attribution as of 6/30/2020
June 30, 2020
- We believe a U.S. economic recovery is underway, and that it is tracking ahead of our expectations from early Q2.
- U.S. retail spending data is improving faster than retail traffic data, and U.S. consumers have amassed significant savings that we believe could fuel continued consumption growth.
- Over the intermediate term, we believe significant fiscal and monetary support for U.S. consumers and businesses, as well as attractive interest rate-adjusted equity valuations, should set the stage for continued equity market gains during the recovery.
- The prospects for international economies are less clear, in our view, as Europe was already facing greater challenges before the crisis and is also very reliant on tourism, while many Asian economies rely on global trade, which remains constrained.
- Risks to the U.S. economic and market recovery remain, including the potential for resurgent infection rates to slow or derail the recovery, a slowdown in consumer spending after record fiscal stimulus boosted trends, and for non-COVID issues, like the 2020 election, to impact investor sentiment.
- We have continued to shift away from the defensive portfolio positioning we had in place at the start of the COVID-19 crisis, while seeking to balance opportunity against ongoing medical, political, and economic risks.
- We increased economically-sensitive U.S. Financials and Industrials allocations and maintained the Energy allocation established in late Q1, while reducing U.S. Health Care exposure and eliminating the U.S. large-cap Utilities allocation, but we believe continued uncertainty in this period of economic inflection still warrants exposure to defensive sectors.
- Technology-related sector exposures are warranted, in our view, regardless of the exact shape of the economic recovery, given the secular tailwinds benefiting these sectors.
- We continue to underweight international equities, given the relative opportunities we see in the U.S. and risks abroad, with a tilt toward Emerging Asian markets within the international allocation.
- U.S. Communication Services
- Western Europe
- U.S. Real Estate
- U.S. Health Care
- U.S. Consumer Staples
- U.S. Information Technology