U.S. Sector portfolio outlook, positioning, and attribution as of 9/30/2021
September 30, 2021
Outlook
- We see the U.S. economy entering an expansionary phase, with healthy economic growth, but we feel the pace of growth is likely to be well below levels of the rapid economic recovery.
- Although consumer spending on goods, which led the post-COVID economic and profit recovery, has slowed in recent months as expected, income growth and savings should continue to support a healthy consumer backdrop as services spending also continues its rebound.
- In our view, economic expansion should support positive equity returns, but we believe shifting economic trends and market volatility will make sector allocation key to investment outcomes in the coming quarters.
- Even though economic and market risks remain, including decelerating economic growth, credit market and regulatory turbulence overseas, and potential for higher interest rates, we believe the economic recovery will continue to progress and an overweight of select economically-sensitive sectors is appropriate.
Portfolio Positioning
- In Q2 and Q3, we made adjustments to and within our allocations to economically-sensitive sectors in anticipation of a shift from rapid economic recovery to a more normalized expansion.
- We are emphasizing sectors with secular growth drivers, like Information Technology and Communication Services, which we expect will see less deceleration in revenue and earnings growth than more cyclical sectors.
- We are also emphasizing sectors trading at a discount to the market with positive earnings outlooks, like Financials, which we believe will benefit from rising interest rates, and the Health Care sector which we expect to deliver steady earnings growth with upside from a rebound in elective procedures as the Delta wave of COVID-19 eases.
- We have materially reduced portfolio exposure to some of the more cyclical sectors such as Industrials and Energy.
Q3 Attribution
Positive Contributors:
Overweight
- Financials
Underweight
- Industrials
- Materials
Negative Contributors:
Overweight
- Communication Services
- Energy
Underweight
- Information Technology
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.