U.S. Sector Index 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. We have recently adjusted mid-phase sector exposures to account for market movement and a modestly reduced outlook for Communication Services.
June 25, 2026
ACTIONS and OVERVIEW:
Reduced Communication Services sector exposure
Adjusted Info. Tech. sector exposure to maintain underweight
Portfolio rebalance
U.S. economic growth has proven resilient so far in 2026, as strong trends in technology equipment orders and digital infrastructure investment, in addition to incremental improvements in industrial activity, have offset modestly slower growth in household consumption. Meanwhile, as negotiations with Iran progress, we continue to believe the conflict is unlikely to derail U.S. economic growth. Our portfolios remain positioned for a mature-stage economy with trend-like real GDP growth, and we have made some adjustments to our mid-phase sector exposure to account for market movement and a modestly reduced outlook for the Communication Services sector.
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%, putting its expected earnings growth below the broader market.
- Continued increases in capital expenditures for the largest Communication Services firms could weigh on their free cash flow, which we view as a sign of declining earnings quality and incremental risk to sector performance.
- Meanwhile we have also seen a shift from net buybacks toward net share issuance for key companies in the sector, which we see as a headwind to per-share value creation.
- With sector-level valuations near recent highs and given the incremental headwinds we see ahead for sector fundamentals, we no longer believe an overweight to the Communication Services 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.
- Despite the sector’s strong return YTD, its forward valuation has declined due to increased earnings expectations; the sector currently trades at a forward P/E of about 22.5x versus an average of over 28x in 2024 and 2025.
The most recent complete presentation can be viewed here.
The information presented herein has been gathered from sources believed to be reliable, however data is not guaranteed. 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. Sector Index 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.