Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 3/31/2021
March 31, 2021
- We expect the global economic recovery to continue in 2021, amid continued U.S. consumer strength and business investment as COVID-19 vaccinations help release pent-up demand in certain parts of the economy.
- A variety of broad-based economic data series, including retail sales and manufacturing activity, have made sharp recoveries from the stringent stay-at-home orders in the first half of 2020.
- 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.
- Even though economic and market risks remain, including potential for higher interest rates and higher taxes, we believe the economic recovery will continue to progress and an overweight of economically-sensitive sectors is appropriate.
- 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.
- Given our outlook for the U.S. economic expansion to continue in 2021, we are overweight more economically-sensitive sectors such as Financials, Industrials, and Energy, which should continue to benefit from early-phase cyclical tailwinds.
- Over the past year, we have reduced exposure to less economically-sensitive sectors, most recently eliminating our Consumer Staples exposure, while seeking to balance opportunity against ongoing medical, political, and economic risks.
- We also maintain exposures to sectors benefitting from positive secular trends, like Information Technology and Communication Services.
- Consumer Discretionary
- Consumer Staples