Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 12/31/2021
December 31, 2021
- We see the U.S. economy entering an expansionary phase, with a healthy, yet moderating, pace of economic growth, a trend that we expect to play out further in 2022.
- Despite lower consumer sentiment readings in the second half of 2021, along with accelerating inflation, consumer spending continues to grow and remains well above the pre-pandemic growth trend even after accounting for higher prices.
- In our view, economic expansion should continue to support positive equity returns, but we believe shifting economic trends and market volatility will make sector allocation key to investment outcomes in the coming quarters.
- Even though economic and market risks remain, including decelerating economic growth, more restrictive monetary policy to combat inflation, and the potential for higher interest rates, we believe the economic recovery will continue to progress and an overweight of select economically-sensitive sectors is appropriate.
- We are emphasizing sectors with secular growth drivers, like Information Technology and Communication Services, which we expect will see less deceleration in revenue and earnings growth than more cyclical sectors.
- We are also emphasizing sectors trading at a discount to the market with positive earnings outlooks, like Financials, which we believe will benefit from rising interest rates, and the Health Care sector which we expect to deliver steady earnings growth with upside from a rebound in elective procedures as consumers prove more resilient during each new wave of COVID cases.
- We maintain select cyclical exposures which should continue to benefit from the current economic expansion, while avoiding most traditional defensive sectors such as Utilities and Consumer Staples.
- Consumer Discretionary
- Health Care
- Information Technology