U.S. Sector portfolio positioning intra-quarter update as of 12/08/2020

Increased expected economic sensitivity of portfolio by adjusting sector exposures

December 8, 2020


Increased economic sensitivity of sector exposure

  • Added to an existing Consumer Discretionary sector ETF holding
  • Added to an existing Energy sector ETF holding
  • Eliminated a Consumer Staples sector ETF holding
  • Trimmed a Health Care sector ETF holding

We have continued to see general improvement in economic fundamentals despite uncertainty amid a resurgence in COVID-19 cases and the contentious U.S. election. Recent news about the high efficacy of coronavirus vaccines in trial and the speed with which the vaccines are likely to be deployed improve our base case for economic recovery. We also believe the likely election outcome of divided government is an overall positive for the economy and corporate earnings.

Given this backdrop, we believe an increase in the portfolio’s economic sensitivity is warranted, particularly with respect to exposures we expect to benefit from a more robust recovery enabled by reduced consumer concerns about virus transmission. In particular, we anticipate more economically cyclical U.S. equity sectors should outperform less economically cyclical sectors.


Increased economic sensitivity of sector exposure

Shifted consumer exposure from Staples to Discretionary:

  • Better-than-expected vaccine progress (both efficacy and timing) should, in our view, benefit Consumer Discretionary businesses, particularly in industries related to travel, leisure, restaurants, apparel and other specialty retail.
  • We think home improvement and homebuilders will remain a driver of Discretionary earnings growth, as people seek improved living space amid new work-from-home flexibility.
  • We expect that unprecedented pandemic-related demand for Consumer Staple products will reverse as consumers feel safer and resume leisure activities like dining out and travel, which could lead to sales/earnings disappointments and present a material risk for the highly valued sector.

Added to Energy exposure/trimmed Health Care overweight:

  • We anticipate high vaccine efficacy will bolster oil and gas end-use markets that represent the vast majority of energy commodity demand, such as travel, production, and trade.
  • We believe many Energy companies are likely to see free cash flow inflect higher as management teams shift their focus away from growth and toward cash generation.
  • Health Care remains a sizable sector exposure, but we believe Health Care is likely to benefit less from a postvaccine rebound in economic activity.

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.

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