Article

Strategic Sector Selector - A cycle in transition

22 October 2021
Paul Jackson
Paul Jackson
Global Head of Asset Allocation Research
Andras Vig
András Vig
Multi-Asset Strategist
Strategic sector selector

The rally in global equities stalled in the third quarter of 2021 after a bout of disappointing economic data pointed to a slowdown in the pace of growth. At the same time, supply bottlenecks and surging energy prices contributed to concern about higher inflation. We believe the economic cycle is going through an adjustment phase to more sustainable growth rates and expect inflationary pressures to peak in the next 12 months. Therefore, we remain biased towards cyclical assets with the caveat that we expect limited returns over the next 12 months. While we increase our allocation to cyclical sectors, we seek a balance between early- and late-cyclicals and exposure to growth and value factors. With this in mind, we tilt late-cyclicals to a slight Overweight, while we selectively shift to Overweights in consumer discretionary and technology. Finally, we reduce our allocations to defensive sectors, which we expect to underperform.

Changes in allocations:

  • Upgrades: energy, travel & leisure (UW to N), basic resources, industrial goods & services, (N to OW), retailers, financial services (UW to OW)
  • Downgrades: telecommunications, utilities (N to UW), food, beverage & tobacco, healthcare (OW to N), media (OW to UW)
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Important information

  • Data as of 30 September 2021 unless stated otherwise.

     

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