Global Equity portfolio positioning intra-quarter update as of 5/11/2021

Adjusted exposures among economically-sensitive U.S. sectors; increased European equity allocation; eliminated U.S. small-caps

May 11, 2021


Adjusted economically-sensitive U.S. sector exposures

  • Added to U.S. large-cap Financials with new ETF holding
  • Added to existing U.S. large-cap Info Tech ETF holding
  • Trimmed U.S. large-cap Industrials ETF holding

Added to Europe; eliminated U.S. small-cap allocation

  • Added to European equity exposure with new ETF holding
  • Eliminated U.S. small-cap equity ETF holding

Full portfolio rebalance

We see global GDP growth, particularly in the U.S, as likely to be strong in the coming quarters, and we continue to emphasize economically-sensitive parts of equity markets. That said, the economic and profit recovery is occurring at an unprecedented pace, and we believe markets are increasingly discounting that fact through rising earnings growth estimates for 2021. Beyond the current burst of economic activity and earnings growth, we see opportunities to begin repositioning among economically-sensitive equity exposures in anticipation of a cyclical shift from rapid economic recovery to expansion.

We see underappreciated economic tailwinds for U.S. Financials and Information Technology in the environment ahead, while we believe the anticipated recovery in Industrials sector earnings has already been significantly discounted in the price of Industrials stocks.

U.S. small-cap stocks have more than doubled from their pandemic lows, but may face risks as the economy moves into expansion. In contrast, we see an improved risk/reward profile for European equities as the pandemic fallout subsides and European Union GDP growth potentially exceeds that of the U.S. in 2022.


Added to U.S. large-cap Financials with new ETF holding:

  • Rapid economic cycle progress over the next 18 mos. could lead the Fed to begin normalizing monetary policy.
  • Continued economic growth and rising interest rates could be significant tailwinds for bank revenue and profits, and for capital markets/investment banking activity.
  • ETF selection tilts our allocation toward banks/cap. mkts.

Added to existing U.S. large-cap Info Tech exposure:

  • In the shift from recovery to expansion, we expect positive secular trends should limit Tech’s earnings deceleration.
  • We expect that technology capex will remain strong as businesses invest to position for the post-COVID-19 world.
  • The Technology sector could benefit from infrastructure stimulus, as tech investment is integral to so many entities.

Trimmed U.S. large-cap Industrials exposure:

  • We now see the risk/return profile of the sector as less attractive than some other economically-sensitive sectors.
  • Industrial product demand has recovered rapidly, which may leave less pent-up Industrials demand going forward.
  • Industrials valuations are now at a premium vs. pre-pandemic, which we think prices in a big earnings rebound.

Added to European equity exposure with new ETF holding:

  • We believe Europe could see a more sustained GDP rebound into 2022, given its recent vaccination progress.
  • Europe is trading at its largest valuation discount to the U.S. since the Euro debt crisis.
  • We see an improved risk/reward profile for Europe, but we remain slightly underweight, given Europe’s ongoing structural challenges.

Eliminated U.S. small-cap equity ETF holding:

  • We have less confidence in U.S. small-cap outperformance as the economy shifts from recovery to expansion.
  • Risks from tax reform and supply chain disruptions could cause small-caps to miss optimistic earnings estimates.

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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