Global Equity portfolio outlook, positioning, and attribution as of 6/30/2021
June 30, 2021
- We expect the rapid global economic recovery to shift to a more normalized economic expansion, led by a surge in consumer spending and business investment alongside the global vaccine rollout and declining coronavirus cases.
- We anticipate continued positive equity returns in the coming quarters, as earnings growth should offset valuation compression, which is typical in a recovery, but we believe sector selection will be crucial in the period ahead.
- Internationally, the prospects for Europe’s economic recovery have improved materially as the EU vaccination rollout accelerated in Q2, and we believe European GDP growth is likely to rebound sharply in the second half of 2021 as lockdown measures are eased.
- Even though economic and market risks remain, including potential for higher interest rates and a deceleration in growth rates, we believe the global economic recovery will continue to progress and an overweight of select economically-sensitive areas of the market is appropriate.
- In Q2, we began to make adjustments to and within our more economically-sensitive allocations in anticipation of a shift from rapid economic recovery to sustained expansion.
- In U.S. large-cap equity allocations, we have increased our exposure to the Information Technology and Financials sectors, which we believe will benefit from positive secular tailwinds and a potential rise in interest rates, respectively.
- We reduced exposure to the U.S. Industrials sector, which may see less pent-up demand going forward than in prior cyclical recoveries, while the sector’s valuation seems to have already priced in a strong earnings rebound.
- We remain underweight international equities, as a whole, but we have eliminated an allocation to U.S. small-caps and increased our exposure to Europe.
- We are overweight Emerging Asia, where we see relative success containing COVID-19 has underpinned significant economic recovery.
- United States
- U.S. Consumer Staples
- U.S. Utilities
- U.S. Small-Cap Equities
- U.S. Financials
- Western Europe