Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 6/30/2021
June 30, 2021
Outlook
- We expect continued economic and earnings growth, along with market gains, as this cycle shifts from rapid recovery to a more normalized economic expansion.
- The post-COVID economic and profit recovery has occurred at an unprecedented pace, led by consumer spending and a sharp increase in U.S. manufacturing activity due to a surge in demand for goods across key parts of the economy, and is now seeing a strong rebound in hard-hit service industries.
- We anticipate continued positive equity returns in the coming quarters, as earnings growth should offset valuation compression, which is typical in a recovery, but we believe sector selection will be crucial in the period ahead.
- Even though economic and market risks remain, including potential for higher interest rates and a deceleration in growth rates, we believe the economic recovery will continue to progress and an overweight of select economically-sensitive sectors is appropriate.
Portfolio Positioning
- In Q2, we began to make adjustments to and within our allocations to economically-sensitive sectors in anticipation of a shift from rapid economic recovery to sustained expansion.
- We have added to our Information Technology allocation, which we expect will see less revenue and earnings deceleration than other economically-sensitive sectors due to positive secular trends and demand for tech capex as companies seek to adapt to the post-COVID economy.
- We also added to our Financials allocation, which we expect to benefit from continued economic growth and a potential rise in interest rates.
- We reduced exposure to the Industrials sector, which may see less pent-up demand going forward than in prior cyclical recoveries, while the sector’s valuation seems to have already priced in a strong earnings rebound.
Q2 Attribution
Positive Contributors:
Overweight
- Communication Services
Underweight
- Consumer Staples
- Utilities
Negative Contributors:
Overweight
- Health Care
- Energy
- Industrials
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.