U.S. Sector portfolio outlook, positioning, and attribution as of 09/30/2023
September 30, 2023
Outlook
- Resilience in some areas of the economy may have pushed out the near-term risk of recession, but multiple indicators still signal heightened risks for the economy.
- We believe the lagged impacts of various factors – including the sharpest set of Fed rate hikes since the 1980’s, tighter lending standards, and decelerating corporate profits growth – have yet to be fully felt and pose material headwinds to the economy in the coming quarters.
- Consumers have remained resilient so far this year, with respectable income and spending growth, but we see various risks to both income and spending ahead, including the resumption of student loan payments and depletion of savings cushions built up during the pandemic.
- In this evolving environment, we see significant risk to corporate earnings for the most economically sensitive parts of the markets.
Portfolio Positioning
- In our view, this evolving economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- We are avoiding early-phase cyclical sectors, which we believe face the greatest risk to earnings amid slowing economic growth and given our view that a sustained reacceleration of growth is unlikely in the near-to-intermediate term.
- We are emphasizing both mid- and late-phase sectors that we expect will see less deceleration in earnings as economic growth slows, including overweights of Communication Services, Health Care, Consumer Staples, and Utilities.
Q3 Attribution
Positive Contributors:
Overweight
- Health Care
Underweight
- Industrials
- Real Estate
Negative Contributors:
Overweight
- Utilities
- Consumer Staples
Underweight
- Energy
Attribution Analysis is relative to the S&P 500 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. Sector 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.