U.S. Sector portfolio positioning intra-quarter update as of 5/11/2021
Adjusted exposures among economically-sensitive sectors
May 11, 2021
Adjusted economically-sensitive sector exposures
- Added to Financials with new ETF holding
- Added to existing Information Technology ETF holding
- Trimmed Industrials ETF holding
Full portfolio rebalance
We see global GDP growth, particularly in the U.S, as likely to be strong in the coming quarters, and we continue to emphasize economically-sensitive parts of equity markets. That said, the economic and profit recovery is occurring at an unprecedented pace, and we believe markets are increasingly discounting that fact through rising earnings growth estimates for 2021. Beyond the current burst of economic activity and earnings growth, we see opportunities to begin repositioning among economically-sensitive equity exposures in anticipation of a cyclical shift from rapid economic recovery to expansion.
We see underappreciated economic tailwinds for Financials and Information Technology in the environment ahead, while we believe the anticipated recovery in Industrials sector earnings has already been significantly discounted in the price of Industrials stocks.
Added to Financials with new ETF holding:
- Rapid economic cycle progress over the next 18 mos. could lead the Fed to begin normalizing monetary policy.
- Continued economic growth and rising interest rates could be significant tailwinds for bank revenue and profits, and for capital markets/investment banking activity.
- ETF selection tilts our allocation toward banks/cap. mkts.
Added to existing Information Technology exposure:
- In the shift from recovery to expansion, we expect positive secular trends should limit Tech’s earnings deceleration.
- We expect that technology capex will remain strong as businesses invest to position for the post-COVID-19 world.
- The Technology sector could benefit from infrastructure stimulus, as tech investment is integral to so many entities.
Trimmed Industrials exposure:
- We now see the risk/return profile of the sector as less attractive than some other economically-sensitive sectors.
- Industrial product demand has recovered rapidly, which may leave less pent-up Industrials demand going forward.
- Industrials valuations are now at a premium vs. pre-pandemic, which we think prices in a big earnings rebound.