U.S. Balanced portfolio outlook, positioning, and attribution as of 12/31/2025
December 31, 2025
Outlook:
- The economic cycle continues to exhibit signs of being at an advanced stage, although GDP appears to have stabilized in the back half of 2025.
- We see potential for a temporary reacceleration in U.S. economic growth in early 2026, tied to certain stimulative policies, including extension and expansion of tax cuts and reduced regulation, which could support a broadening out of market leadership.
- We also see risks, however, from market concentration, valuations, and lofty expectations for AI-driven growth.
- The U.S. consumer remains on solid footing, but softer labor demand and low consumer expectations could hinder spending growth.
- Private fixed investment has supported continued economic growth with continued AI infrastructure capex, which, in turn, has supported tech-focused areas of the economy, but we still see headwinds for more traditional business investment.
- We expect the Federal Reserve is likely to cut interest rates 2-3 times in 2026, which should help further steepen the yield curve, as resilient economic growth in the intermediate term and gradual disinflation could limit the downside to longer-term interest rates.
Positioning:
- In our view, the evolving late-cycle economic environment, elevated policy uncertainty, and rich valuations warrant a balance of defensive and select economically sensitive sector exposures.
- In large-cap U.S. equities, we are avoiding several most cyclical, early-phase sectors, but have increased Financials exposure, which we see benefiting from a steeper yield curve and extension of the economic cycle, and trimmed exposure to AI/tech-related mid-phase sectors.
- We have also shifted some of the large-cap allocation to broad small-cap exposure, which we see as an increasingly attractive-yet-underappreciated part of the market with the potential to outperform in a continued, broader expansion.
- We are overweight the late-phase, defensive sectors that we expect can outperform as growth slows, and we have added to Health Care with a tilt toward the Biotech industry.
- 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.
Q4 Attribution
Positive Contributors:
Overweight
- Health Care Equities
- Financials Equities
Underweight
- Information Technology Equities
Negative Contributors:
Overweight
- Communication Services Equities
- Utilities Equities
Underweight
- Consumer Discretionary 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.
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’ 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.