U.S. Balanced portfolio outlook, positioning, and attribution as of 03/31/2025
March 31, 2025
Outlook:
- We continue to see late-cycle economic conditions in the U.S. and anticipate a likely deceleration of economic activity in the near-term, with potential for extension of late-cycle growth in the intermediate term if uncertainty eases.
- The combination of protectionist trade policy, cuts to government spending and jobs, diminished private sector hiring, and slower household wealth gains leading to a higher savings rate all have the potential to weigh on economic growth this year, in our view.
- We see earnings growth as a primary driver of potential positive U.S. equity returns this year, driven in part by potential productivity gains from factors including ongoing AI investment, while a steepening yield curve and weakening sentiment could weigh on equity valuations.
- The U.S. consumer has limited capacity to accelerate spending from here, in our view, as labor demand appears to be weakening and the savings rate remains low, but if sentiment and markets stabilize, healthy household and business balance sheets could allow for the use of credit and re-leveraging to drive growth in consumer spending and business investment.
- We believe the Fed has flexibility to continue easing, but the expected pace of cuts suggests monetary policy will remain moderately restrictive in the near-term, which further argues for an extension of late-cycle economic growth rather than a material reacceleration of growth in the near-term.
Portfolio Positioning:
- In our view, the evolving late-cycle economic environment and elevated policy uncertainty warrant a balance of defensive sector exposures and select economically sensitive exposures.
- We are avoiding several of the most cyclical early-phase sectors, but retain exposure to Financials, which we see benefitting from a steeper yield curve and a potential extension of late-cycle growth if policy uncertainty eases.
- We maintain significant exposure to mid-phase sectors, where valuations have moderated somewhat, and we continue to see secular tailwinds.
- We are overweight the late-phase, defensive Health Care and Consumer Staples sectors that we expect can outperform as growth slows.
- We maintain a neutral allocation to fixed income, made up of intermediate and longer-term Treasury securities, while corporate exposure is focused in shorter maturities where we see less risk from a potential widening of credit spreads.
Q1 Attribution
Positive Contributors:
Overweight
- Health Care Equities
- Financials Equities
Underweight
- Information Technology Equities
Negative Contributors:
Underweight
- Energy Equities
- Industrials Equities
- Utilities Equities
Attribution Analysis is relative to the U.S. Balanced benchmark and was current as of the date specified in this presentation. A complete attribution report is available upon request.
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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. Balanced 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.