U.S. Sector portfolio outlook, positioning, and attribution as of 9/30/2021
September 30, 2021
- 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.
- 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.
- Communication Services
- Information Technology