U.S. Balanced portfolio outlook, positioning, and attribution as of 06/30/2025
June 30, 2025
Outlook:
- We continue to see late-cycle economic conditions in the U.S. with an ongoing deceleration in activity, but we also see a path to an extension of the cycle as the economy acclimates to uncertainty and the policy focus shifts toward more stimulative measures like tax cuts and deregulation.
- The combination of protectionist trade policy, cuts to government spending and jobs, diminished private sector hiring, and slower household wealth gains leading to a higher savings rate all have the potential to weigh on economic growth this year, in our view.
- We see earnings growth as a primary driver of potential positive U.S. equity returns this year, driven in part by potential productivity gains from factors including ongoing AI investment, while a steepening yield curve and weakening sentiment could weigh on equity valuations.
- The U.S. consumer has limited capacity to accelerate spending from here, in our view, as labor demand appears to be weakening and the savings rate remains low, but with stabilizing sentiment and markets, healthy household and business balance sheets could allow for the use of credit and re-leveraging to drive continued spending and business investment.
- With the Federal Reserve on a path toward policy recalibration, we believe the yield curve re-steepening process can continue, as resilient economic growth in the intermediate term and gradual disinflation could limit the downside to longer-term interest rates.
Portfolio Positioning:
- In our view, the evolving late-cycle economic environment and elevated policy uncertainty warrant a balance of defensive sector exposures and select economically sensitive exposures.
- We are avoiding several of the most cyclical early-phase sectors, but retain exposure to Financials, which we see benefitting from a steeper yield curve and a potential extension of late-cycle growth.
- We have shifted to a modest aggregate overweight of mid-phase sectors, which provide a mix of economic sensitivity and exposure to positive secular trends.
- We are overweight the late-phase, defensive Health Care and Consumer Staples sectors that we expect can outperform as growth slows.
- We maintain a relatively neutral allocation to fixed income, with emphasis on intermediate and longer-term Treasury exposure as well as shorter-term corporate exposure where we see less risk from a potential widening of credit spreads.
Q2 Attribution
Positive Contributors:
Underweight
- Energy Equities
- Fixed Income Asset Class
Negative Contributors:
Overweight
- Health Care Equities
- Consumer Staples Equities
- Communication Services Equities
Attribution Analysis is relative to the U.S. Balanced benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request.
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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’ U.S. Balanced 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.