Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 12/31/2020
December 31, 2020
- We expect economic recovery and expansion to continue in 2021, amid ongoing U.S. consumer strength and business investment as COVID-19 vaccinations help release pent-up demand in certain parts of the economy.
- The recovery has varied across the U.S. economy, with consumer spending on goods actually higher than pre-recession levels, while consumer spending on services remains below prior year levels.
- We anticipate positive equity market returns this year as rising earnings expectations for cyclical stocks should offset a likely decline in valuation multiples, which is typical early in a cycle.
- Sector allocation will be increasingly important in 2021, in our view, as the ongoing recovery and expansion drive a rebound in earnings for cyclical sectors and areas of the economy hardest hit by the pandemic, such as retail, travel, and leisure.
- While risks remain, we anticipate more economically-sensitive equity sectors will continue to benefit from early-phase cyclical tailwinds as earnings growth rebounds with economic recovery.
- We have continued to shift away from the relatively defensive portfolio positioning in place at the start of the COVID-19 crisis, while seeking to balance opportunity against ongoing medical, political, and economic risks.
- Since late Q1 2020, we have increased exposures to more economically-sensitive areas of the markets, including establishing allocations in the Financials, Industrials, and Energy sectors.
- We have continued to reduce exposure to less economically-sensitive sectors, most recently pairing back Consumer Staples exposure.
- We also maintain exposures to sectors benefitting from positive secular trends, like Information Technology and Communication Services.
- Health Care
- Information Technology
- Consumer Discretionary
- Consumer Staples