U.S. Balanced portfolio positioning intra-quarter update as of 06/04/2026

U.S. economic growth is proving resilient, as robust digital infrastructure investment offsets slower growth in household consumption. Meanwhile, the Iran conflict has added to inflationary pressures amid ongoing supply constraints across energy, metals, transportation, and technology hardware components. In our large-cap equity allocation, we have added Materials exposure and eliminated Consumer Staples.

June 4, 2026

ACTIONS and OVERVIEW:

Initiated large-cap Materials sector allocation

• Added new Materials equity sector ETF holding

Eliminated large-cap Consumer Staples sector exposure

• Sold existing Consumer Staples equity sector ETF holding

Our U.S. outlook now contemplates a mature-stage economy with trend-like real GDP growth powered by digital infrastructure spending and incremental improvements in industrial activity.  Meanwhile, with the fiscal policy impulse for consumers (e.g., tax refunds) likely to fade in the back half of 2026, the savings rate back at historical lows, and real income growth below historical norms, we see limited potential for a sustained acceleration in household consumption.

To adjust portfolios for this shifting balance between the investment and consumer sides of the U.S. economy, we have exited our large-cap Consumer Staples equity exposure, and we have initiated an allocation to the large-cap Materials equity sector.  We believe Materials companies are poised to benefit as suppliers of key upstream inputs for the broad industrial complex and the ongoing digital infrastructure buildout, including non-energy commodities, construction materials, and industrial gases.

UPDATE DETAIL:

Initiated large-cap Materials sector allocation

• We see the current environment’s above-target inflation, higher bond yields, and gradual acceleration in the non-tech industrial production as favorable for Materials, similar to the mid-2000s commodity and industrial cycle when secular tailwinds drove robust global investment analogous to today’s tech infrastructure buildout.
• The Chemicals and Construction Materials industries are likely to benefit, in our view, from the ongoing upturn in broad industrial activity as well as secular tailwinds from data-center construction and grid investment.
• Metals & Mining industry earnings are sensitive to copper and gold prices, and we believe metals producers can generate rapid free cash flow gains at current prices, with potential upside to earnings versus consensus estimates.
• We see the Containers & Packaging industry benefitting from improving pricing dynamics and an accelerating post-tariff demand backdrop.
• Materials sector earnings growth is expected to outpace the S&P 500 over the next four quarters, yet the sector’s relative valuation is near the low end of its historical range.

Eliminated large-cap Consumer Staples sector exposure

• Consensus estimates for the Consumer Staples sector suggest annualized earnings growth of about +7% over the next two years compared to +19% for the S&P 500, which creates a challenging set-up for outperformance barring a significant deterioration in economic growth expectations.
• Consumer Staples sector valuations are essentially in-line with the S&P 500, while other defensive sectors where we see more favorable earnings growth prospects trade at material valuation discounts to the broader market.
• Certain industries, including Food & Beverages, face headwinds to volume growth after several years of outsized price gains, and we believe volume and margin growth will remain challenging, particularly if costs for inputs such as aluminum and agricultural commodities move higher.