U.S. Balanced portfolio positioning intra-quarter update as of 06/25/2026

With mature but resilient economic growth and an evolving interest rate backdrop in the U.S., we remain positioned for late-cycle expansion with a blend of select economically sensitive and defensive exposures, but we have adjusted mid-phase equity sector exposures along with fixed income credit and duration exposures.

June 25, 2026

ACTIONS and OVERVIEW:

Reduced Communication Services sector exposure

• Trimmed Communication Services sector ETF holding

Adjusted Info. Tech. sector exposure to maintain underweight

• Increased target weight of Info. Tech. sector ETF holding

Adjusted fixed income credit and duration exposures

• Added to existing long-term Treasury bond ETF holding
• Trimmed existing intermediate Treasury bond ETF holding
• Added to existing short-term corporate bond ETF holding
• Sold intermediate corporate bond ETF position

Portfolio rebalance

U.S. economic growth has proven resilient so far in 2026, as strong trends in technology infrastructure investment and incremental improvements in industrial activity have offset modestly slower growth in household consumption. We continue to believe the Iran conflict is unlikely to derail U.S. economic growth.  In the large-cap allocation, we have reduced Communication Services sector exposure, and we adjusted our Information Technology target weight to maintain our desired underweight as the sector’s market weight has grown.

Within the fixed income allocation, we have reduced corporate credit exposure while maintaining focus on short maturities for corporate bonds, but we extended overall duration by adding to long-term Treasury exposure.

UPDATE DETAIL:

Reduced Communication Services sector exposure

• The Communication Services sector has become increasingly concentrated, with just two companies making up nearly 80% of the sector’s market-cap in the S&P 500.
• Despite relatively stable top-line expectations, we believe earnings growth for these largest companies in the sector will face pressure from rising depreciation and operating expenses associated with new data center buildouts.
• Consensus earnings estimates for the sector anticipate a 19 ppt deceleration in growth in 2027 to just 8%, which is below the broader market, and ongoing capex growth could weigh on free cash flow for larger companies in the sector.
• With sector-level valuations near recent highs and given the incremental headwinds we see ahead for the sector, we no longer believe an overweight to the sector is warranted.

Adjusted Info. Tech. sector exposure to maintain underweight

• We have increased our target weight for Information Technology to maintain our desired underweight of the sector as recent outperformance has increased its weight in the market (note: participation in the tech rally already put portfolios at or above the new target).
• Information Technology continues to exhibit the strongest fundamentals of any S&P 500 sector, in our view, with expected earnings growth of 45% and 30% in 2026 and 2027, respectively, yet forward valuation has declined YTD due to increased earnings expectations.

Adjusted fixed income credit and duration exposures

• Credit spreads for intermediate-and-long duration corporate bonds have retraced toward historic lows, and we have taken the opportunity to reduce credit exposure and spread duration, as even a slight widening of spreads could offset the yield benefit of longer-term corporate exposure.
• Real yields for long-term Treasury bonds have risen near 20-year highs, and we see limited risk of runaway inflation, which suggests intermediate maturities could be more vulnerable to fears of Fed rate hikes moving forward.