Global Conservative portfolio outlook, positioning, and attribution as of 12/31/2023
December 31, 2023
Outlook
- We see late-cycle conditions globally and a potential fork in the road for the U.S. economy in 2024: factors that have supported growth in recent quarters fading and we see more challenges for the U.S. consumer ahead, which raises the risk of recession, but we also see a realistic path toward a “soft landing” that could further extend the cycle.
- Temporary post-COVID factors that have helped sustain economic growth are fading, including record demand for labor, rebounding labor market participation, and above-trend consumer savings and wage growth.
- A shift to less restrictive U.S. monetary policy could help limit the negative impacts of the Fed’s sharp rate-hiking cycle, but we believe it is very unlikely to kick off a new period of rapid economic expansion.
- Absent an unexpected reacceleration of inflation, we also see potential for a continued pullback in Treasury yields in 2024, though interest rates should remain a headwind to growth, and credit spreads could widen.
- Internationally, Europe is facing a pullback in household consumption and investment, along with higher inflation risks and less of a savings cushion than the U.S., and China’s growth remains anemic due to negative wealth effects and deleveraging, but Japan is a relative bright spot, as its inflation recedes while stimulative monetary policy remains in place.
Portfolio Positioning
- In our view, this evolving economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- In the U.S., we are avoiding early-phase, cyclical sectors and emphasizing both mid- and late-phase sectors with secular earnings drivers and that we expect will see less deceleration in earnings as economic growth slows, such as Communication Services and Health Care.
- We remain underweight to international equities, as a whole, including Europe and emerging markets, but we maintain an overweight of developed Asia, where we see the greatest potential for economic resilience abroad.
- We maintain an overweight of fixed income with an emphasis on intermediate and longer-term Treasury securities that we believe should benefit from declining interest rates, and we have continued to reduce corporate exposure, where current credit spreads offer limited compensation for risk.
Q4 Attribution
Positive Contributors:
Overweight
- Long-Term Bonds
Underweight
- U.S. Energy Equities
- Short-Term Fixed Income Securities
Negative Contributors:
Overweight
- U.S. Health Care Equities
- U.S. Consumer Staples Equities
Underweight
- U.S. Financials Equities
Attribution Analysis is relative to the Global Conservative 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’ Global Conservative 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.