Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 3/31/2022
March 31, 2022
- We see continuing cyclical progression toward a healthy-but-slower-growth economic expansion, driven by a mix of consumer and business strength.
- Economic and geopolitical risks have increased over the past quarter, including elevated inflation, tightening monetary policy, and spiking oil prices tied to the Russian invasion of Ukraine, but we do not expect these issues to derail economic growth in 2022.
- As economic growth decelerates, we expect equity market returns in 2022 to be driven primarily by earnings growth, partly offset by further multiple contraction.
- We expect earnings growth to vary significantly across U.S. sectors in 2022, as is typical during economic transitions, and we believe sector allocation will be key to investment outcomes in the coming quarters.
- We have moved to a material overweight of Information Technology and maintain an overweight to Communication Services, sectors 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 higher interest rates, and the Health Care sector, which we expect to deliver steady earnings growth with upside from a rebound in elective procedures as the recent waves of COVID-19 ease.
- We have eliminated Industrials exposure, but maintain an allocation to the Energy sector, while avoiding traditionally defensive sectors such as Utilities and Consumer Staples.
- Health Care
- Consumer Discretionary
- Communication Services
- Information Technology