Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 12/31/2021
December 31, 2021
Outlook
- 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.
Portfolio Positioning
- 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.
Q4 Attribution
Positive Contributors:
Overweight
- Energy
- Consumer Discretionary
Negative Contributors:
Overweight
- Financials
- Health Care
Underweight
- Information Technology
Attribution Analysis is relative to the S&P 500 benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request.
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’ Large-Cap Core 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.