Global Equity 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, 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.
- Internationally, most major economies still face late-cycle challenges, in addition to risks from volatile U.S. tariffs policy.
- China continues to face deleveraging headwinds, while Europe also faces political uncertainty and slowing employment gains.
- Japan is an outlier, in our view, with positive growth trends and relatively loose monetary policy.
Portfolio Positioning:
- In our view, the evolving late-cycle economic environment warrants a balance of exposures to defensive areas of the market as well as areas that should benefit if economic growth persists.
- We are avoiding most cyclical early-phase U.S. sectors, but retain exposure to Financials, which could benefit from a steeper yield curve and an extension of the cycle if uncertainty eases.
- We maintain exposure to mid-phase sectors, where valuations have moderated somewhat and we continue to see secular tailwinds, and are overweight late-phase, defensive U.S. sectors that we expect can outperform as growth slows.
- We are underweight Europe and emerging markets, but retain an overweight of developed Asia, where we see Japan’s monetary policy and defensive characteristics as attractive.
Q1 Attribution
Positive Contributors:
Overweight
- U.S. Health Care
- U.S. Financials
Underweight
- U.S. Information Technology
Negative Contributors:
Underweight
- Western Europe
- U.S. Energy
Attribution Analysis is relative to the MSCI ACWI (Net) Index 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’ Global Equity 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.