U.S. Sector portfolio outlook, positioning, and attribution as of 9/30/2022
September 30, 2022
Outlook
- With the rapid evolution of this economic cycle, deterioration in some economic data along with the Fed’s aggressive monetary policy stance point to later-cycle economic conditions here in the U.S., in our view.
- Some areas of the U.S. economy remain sound, such as the labor market and services consumption, but we see little chance of a resumption of rapid and dynamic economic growth given the progress of the cycle to date and ongoing tightening of financial conditions.
- In this evolving environment, we see increased risk to corporate earnings and, more broadly, to the performance of particularly economically sensitive parts of the markets.
- We expect earnings growth to vary significantly across U.S. sectors during the remainder of 2022 and in 2023, as is typical during economic transitions and deceleration, and we believe sector allocation will be key to investment outcomes in the coming quarters.
Portfolio Positioning
- We are avoiding early-phase cyclical sectors and we are instead emphasizing sectors that we expect will see less deceleration in earnings and less margin degradation as economic growth slows.
- We have increased exposure to late-phase, defensive sectors by establishing overweight allocations to Consumer Staples and Utilities, while also maintaining an overweight of the Health Care sector.
- We remain overweight the mid-phase Information Technology and Communication Services sectors, which we believe will benefit from positive secular earnings drivers and see less deceleration in revenue and earnings growth than more cyclical sectors.
Q3 Attribution
Positive Contributors:
Overweight
- Health Care
Underweight
- Consumer Staples
- Real Estate
Negative Contributors:
Overweight
- Communication Services
Underweight
- Energy
- Financials
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.