Large-Cap Core Equity portfolio outlook, positioning, and attribution as of 9/30/2020
September 30, 2020
- We expect economic recovery and expansion to continue, as fiscal support has more than offset aggregate income losses and, thus, we believe provides a bridge for consumption into 2021.
- The recovery has varied across the U.S. economy, with consumer spending on goods returning to pre-recession growth, while industrial production is rebounding but remains below prior year levels.
- Despite a significant stock market rebound, we believe U.S. equity valuations remain attractive compared to history when adjusted for the record low level of long-term interest rates.
- While risks remain, we anticipate more economically sensitive equity sectors will benefit from early-phase cyclical tailwinds as earnings growth rebounds with economic recovery.
- We have continued to shift away from the relatively defensive portfolio positioning in place at the start of the COVID-19 crisis, while seeking to balance opportunity against ongoing medical, political, and economic risks.
- Since late Q1, we have increased exposures to more economically-sensitive areas of the markets, including establishing allocations in the Financials, Industrials, and Energy sectors.
- We have continued to reduce exposure to less economically sensitive sectors, most recently pairing back Consumer Staples exposure.
- While we maintain exposures to sectors benefiting from positive secular trends, like Information Technology and Communication Services, we have increasingly shifted focus toward sectors we expect to benefit from cyclical tailwinds but which have lagged year-to-date.
- Communication Services
- Information Technology
- Consumer Discretionary