Global Equity portfolio positioning intra-quarter update as of 3/11/2022

Refined U.S. mid-phase sector exposures and modestly reduced the portfolio’s expected economic sensitivity as we see the U.S. economy shifting to cyclical expansion

March 11, 2022

Actions and Overview:

Reduced the expected economic sensitivity of portfolio:

  • Eliminated a position in a U.S. Industrials sector ETF
  • Added to an existing U.S. Health Care sector ETF holding

Adjusted U.S. mid-phase sector allocations (tilted toward Information Technology exposure):

  • Established a new position in a U.S. Information Technology sector ETF that also includes technology-related exposure within the U.S. Consumer Discretionary and Communication Services sectors
  • Trimmed a U.S. Information Technology ETF holding
  • Trimmed a U.S. Consumer Discretionary ETF holding
  • Trimmed a U.S. Communication Services ETF holding

Full Portfolio Rebalance

We see the U.S. economic cycle advancing from dynamic-recovery growth to more trend-like mid-phase growth. Amid this transition, we have refined our sector allocations (and avoidance) to account for evolving fundamental economic and business profit opportunities and challenges. Specifically, we modestly reduced the portfolio’s expected economic sensitivity by eliminating U.S. Industrials sector exposure and adding to an existing overweight of the U.S. Health Care sector. Within the portfolio’s U.S. mid-phase sector allocations, we moved Information Technology to a significant overweight, reduced Consumer Discretionary exposure, and added an emphasis on tech-related exposures within the U.S. Consumer Discretionary and Communication Services allocations. We also took this opportunity to implement a full portfolio rebalance.


Reduced expected economic sensitivity of portfolio:

  • We expect overall economic growth to moderate as part of the typical progression of the cycle, presenting a headwind to the economically sensitive Industrials sector, which also faces margin pressures from higher input and labor costs.
  • The Health Care sector, in our view, offers a favorable combination of reliable earnings growth at attractive absolute and relative valuations – consensus earnings projections for the sector indicate a greater than 10% compound annual growth rate from 2019 to 2023, yet its P/E is at a historically-large discount to the S&P 500.

Adjusted U.S. mid-phase sector allocations (tilted toward Information Technology exposure):

  • The technology investment cycle should remain strong as the economy moves to mid-phase expansion, in our view, as companies revamp tech platforms for flexible work environments and eCommerce, and as the tight labor market increases the incentive for technology investments to enhance productivity and substitute labor.
  • The U.S. Information Technology sector’s P/E multiple has declined roughly 5-points so far in 2022, which alleviates valuation concerns we had in 2021.
  • Meanwhile, we reduced U.S. Consumer Discretionary sector exposure, in part because we expect above-trend consumer spending on goods will moderate in 2022 as real incomes are pressured by inflation and consumers reallocate spending to services; we also expect the sector to face margin pressures from the tight labor market.
  • We maintain a significant overweight of the U.S. Communication Services sector, which we expect will benefit from positive secular earnings growth drivers amid more trend-like expansionary economic growth, while shifting some of that overweight to a new holding has emphasized tech-related, higher-quality (high free cash flow, low debt/equity, etc.) exposure over the more interest rate-sensitive portions of the sector.

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 Equity 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. Upon request, WestEnd Advisors will provide a list of all recommendations for the prior year.

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