Global Equity portfolio positioning intra-quarter update as of 5/20/2022

Reduced economically-sensitive U.S. sector exposure, and added to mid-phase and late-phase U.S. sector exposure.

May 24, 2022

Actions and Overview:

Reduced early-phase U.S. Financials sector exposure:

  • Eliminated one Financials ETF position
  • Trimmed remaining Financials ETF holding

Increased mid-phase and late-phase U.S. sector allocations:

  • Added to an existing Information Technology ETF holding
  • Added to an existing Communication Services ETF holding
  • Added to an existing Health Care sector ETF holding

The economic cycle continues to evolve and, while economic risks have increased, particularly those tied to inflation and monetary policy, economic data remains sound. It remains our view that we will see a continuation of the U.S. economic expansion as this cycle progresses. At the same time, we see diminished potential for dynamic, early-cycle economic growth due to the natural progression of the cycle and tighter financial conditions, including a new, more restrictive path for monetary policy.

Given this backdrop, we have reduced our U.S. Financials exposure from an overweight to a modest underweight, which, along with avoidance of U.S. Materials and Real Estate, creates a significant underweight of early-phase sectors in our U.S. equity exposure. At the same time, we have increased our emphasis of select mid-phase and late-phase U.S. sectors, where we see a mix of positive earnings and valuation tailwinds in a slower economic growth environment. Specifically, we have added to existing U.S. Communication Services, Information Technology, and Health Care sector allocations. In conjunction with these adjustments, we have also taken the opportunity to rebalance portfolios.


Reduced early-phase U.S. Financials sector exposure:

  • Our base case remains that the U.S. economy will grow into 2023, but U.S. banks’ Net Interest Income earnings drivers now look less compelling under the primary economic outcomes we see ahead:
    • Continuation of the cycle: In the most likely outcome, in our view, the Fed’s rate hikes undershoot investors’ current expectations for the level of short-term interest rates, a key earnings driver for banks.
    • Recession Timing Pulled Forward: Alternatively, an economic downturn in the next six to eighteen months, which we see as a much less likely outcome, would probably have an outsized negative impact on the most economically sensitive sectors, including Financials.
  • As the economic cycle matures, we also see headwinds to banks Non-Interest Income and a potential normalization of bank charge-off rates from current low levels.

Increased mid-phase and late-phase U.S. sector allocations:

  • We expect the U. S. Communication Services sector to average double-digit earnings growth in 2022 and 2023, yet with a recent reset of expectations for post-pandemic growth rates for streaming and other offerings, the sector now trades at an atypical discount to the S&P 500.
  • U.S. Information Technology should benefit, in our view, from a strong ongoing technology investment cycle, as corporate profitability and balance sheet resources remain sound and companies invest in technology to enhance productivity, while the recent sharp contraction in the sector’s forward P/E multiple to a more typical relative valuation reduces performance risk going forward.
  • We believe the U.S. Health Care sector offers a favorable combination of reliable earnings growth, attractive valuations, and, if recessionary risks increase materially, less performance risk from rising interest rates and above-market valuations than other late-phase defensive sectors.

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.

Portfolio outlook, positioning, and attribution
Portfolio positioning intra-quarter
Connect with us

To learn more about how our proprietary sector-based approach can help you in meeting your investment objectives, please call us at 888.500.9025, or email us at