U.S. Sector portfolio positioning intra-quarter update as of 9/03/2020

Increased economically-sensitive sector exposure/trimmed late-phase, defensive sector exposure

September 3, 2020

We see continued economic progress in this recovery, which we believe will benefit Industrials companies and present a headwind for the relative performance of Consumer Staples. Additionally, Industrials stocks have lagged substantially year-to-date, while Staples stocks, despite their typically defensive nature, have largely kept pace in Q3’s continued market rally due, in part, to demand factors that we believe will prove temporary. Thus, we see more opportunity looking forward in the more economically-sensitive Industrials sector. We have also taken this opportunity to rebalance the portfolio.

Increased economically-sensitive sector exposure: We have added to the portfolio’s Industrials sector allocation. We are seeing a pickup in economic activity that we believe should benefit Industrials, e.g., improved machinery orders, increased shipping activity, and strong consumer spending on durable goods. Cost cutting should enhance the cyclical earnings recovery for Industrials, in our view, and new fiscal stimulus and/or a post-election infrastructure bill could offer further upside. Industrials should have some of the strongest U.S. sector earnings growth amongst all U.S. sectors in 2021, which, along with a market-like valuation, makes the sector increasingly attractive, in our view, at this stage of recovery.

Reduced late-phase, defensive sector exposure: We have trimmed the portfolio’s allocation to the Consumer Staples sector. The pandemic has created an unprecedented jump in demand for various Consumer Staples products, which we believe is likely to reverse when consumers feel safer and resume leisure activities like dining out and travel. Despite defensive characteristics, Consumer Staples had strong Q3 returns supported by positive earnings, but now elevated investor expectations could set up the sector for disappointing results going forward.

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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.

Portfolio outlook, positioning, and attribution
Portfolio positioning intra-quarter
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