Multi-Asset portfolio positioning intra-quarter update as of 02/27/2025
We continue to see a maturing U.S. economic cycle, where the most likely scenarios over the next 12-18 months are either continued late-cycle expansion—supported by personal income growth and broadening corporate profits—or a migration into a slowdown phase of the cycle. We have made portfolio changes to keep positioned for evolving opportunities and risks.
February 27, 2025
ACTIONS and OVERVIEW:
Selectively increased U.S. Information Technology allocation
- Added to existing U.S. Software industry ETF holding
Selectively reduced U.S. Financials sector overweight
- Eliminated U.S. Capital Markets industry ETF holding
Adjusted exposure within real assets
- Added to existing gold ETF holding
- Trimmed existing energy infrastructure ETF holding
Portfolio rebalance
Our research shows late-cycle conditions tend to favor Information Technology as businesses invest in productivity, and Software is a more consistent outperformer than other areas of Tech in slowdowns. Software also faces less risk than those industries, in our view, from ongoing trade policy.
Meanwhile, U.S. Capital Markets firms recently performed well, but we now expect slower growth in capital markets activity. Economic conditions should still be favorable for the industry, however, and we retain a reduced Capital Markets overweight through our overweight of the broader sector.
Separately, following a period of strong performance for energy infrastructure assets, we have trimmed that allocation and increased exposure to gold. The allocation to real assets in aggregate remains unchanged.
UPDATE DETAIL:
Selectively increased U.S. Information Technology allocation
- Software companies’ we follow report material AI-driven productivity gains, which could support margin expansion.
- While trading at a premium, we see Software valuations as the most attractive among the three largest Tech industries.
- Software can offer relatively predictable revenue streams with high margins and free cash flow, which we see as appealing amid elevated trade policy uncertainty.
Selectively reduced U.S. Financials sector overweight
- The U.S. Capital Markets industry has performed favorably since we overweighted it last spring, and it now trades at elevated valuations that could limit future outperformance.
- U.S. Capital Markets industry outperformance of the broad market has historically been linked to accelerating industry earnings growth, but its earnings growth faces challenging year-over-year comparisons this year.
- Economic conditions should still support capital markets activity growth, and we maintain a reduced overweight of the industry via our U.S. Financials sector overweight.
Added to gold allocation
- We believe late-cycle economic environments tend to favor allocations to gold, particularly versus other more cyclical real assets like energy commodities and mining equities.
- Gold recently withstood U.S. dollar strength and elevated real interest rates, and we believe gold can benefit if real interest rates decline amid slower growth, particularly since gold holdings in ETFs are nearly 25% below 2020 levels, suggesting sidelined investors could offer future demand.
- We believe central bank gold purchases can persist amid global demand for non-USD reserve assets.
Trimmed energy infrastructure allocation
- Energy infrastructure outperformed broader global equities over the past two years amid valuation expansion tied, in part, to potential energy demand from AI and re-shoring.
- Elevated valuations relative to healthy fundamentals offered an appropriate opportunity to trim exposure, in our view.
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’ Multi-Asset 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.