Quarterly Commentaries

U.S. Equity Strategy 2Q 2018


Key Takeaways

  • In the second quarter of 2018, our U.S. Equity strategy performed in-line with the S&P 500 Index. Hearty U.S. growth has finally led to a tight labor market and rising inflation, so the significant debt-fueled tax cut and increased budget deficit could easily be viewed as pouring gasoline on a fire. Rising rates can lead to risk re-pricing on weaker assets and impact valuation multiples.
  • The portfolio’s relative performance in the quarter was driven by our health care holdings and underweight to industrials, which was the worst performing sector in the index. These offset weakness from our higher-yielding consumer staples holdings. Lack of exposure to the strong (and in our view unpredictable) energy sector weighed against relative returns.
  • Amid falling visibility, as the Fed acts to align rates with its inflation targets, which are finally materializing after remaining below the desired two percent level, resilience at both the company and investment levels becomes increasingly important. We reiterate our evergreen view that fulfilling the promise of quality growth investments requires style consistency and patience through the cycle. We maintain an overweight to consumer staples and staple-like growth companies, which have typically performed well through changing economic conditions.
  • We remain alert to new investment opportunities. In our view, the advantage for quality growth investors is that quality franchises do not change shape or bleed cash when facing a slowdown or rising debt costs.

Trailing Returns: U.S. Equity Composite(As of 06.30.2018)

Calendar Year Returns

Source: NorthernTrust
All results portrayed are expressed in U.S. dollars.
Past performance is not necessarily indicative of future results. For full disclosure and for further information regarding comparison to an index, see the Disclaimer and Performance Disclosure.

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