Quarterly Commentaries

U.S. Equity Strategy 4Q 2017


Key Takeaways

  • Our U.S. Equity Strategy outperformed the S&P 500 Index in the fourth quarter and the one-year period ending December 31, 2017.
  • Macroeconomic conditions and earnings growth in the U.S. were strong and consistent this year. In the fourth quarter, tax reform and solid economic numbers bolstered U.S. markets. Reflecting the warming economy, the Fed raised rates for the third time this year in December.
  • From a relative perspective, our Health Care holdings outperformed the benchmark, particularly Align Technology, UnitedHealth Group, Zoetis and Becton Dickinson. Our Consumer Discretionary holdings, led by Nike, also contributed to relative performance. Our Industrials holdings, driven by negative performance from Nielsen Holdings, detracted from relative returns.
  • While U.S. growth is likely to remain intact in 2018, the near-perfect macro backdrop could deteriorate due to less accommodative monetary policy by the Federal Reserve. A larger-than-expected rise in inflation or bond yields could negatively impact today’s valuations. Tax cuts will benefit many companies, particularly those with domestic operations, but at the same time they will increase the deficit. Fixed income investors could in turn, drive interest rates higher.
  • It is critical for us not to be caught up in the euphoria of the markets. We remain focused on identifying high quality companies – businesses with durable competitive advantage and stable, predictable earnings that will prove to be more resilient in a full economic cycle and that are relatively safer for our investors.

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