- Downgrade Health Care to Neutral from Overweight: Valuation — (i) Based on the metrics we consider, Health Care is by far the most expensive of the 10 GICS in the MSCI ACWI; (ii) The sector’s weight in the MSCI ACWI is currently 25% above its 20-year average; (iii) Poor risk/reward: our recently introduced “Materiality Matrix” illustrates that, from an ESG perspective, Health Care has the second-worst ESG likelihood/ESG impact profile of eight MSCI sectors.
- Downgrade Information Technology to Neutral from Overweight: Earnings — Earnings momentum and earnings revisions are both very unfavorable.
- Financials the Only Overweight Sector — Financials is the cheapest sector; earnings trends remain relatively strong. “Diversified Banks” (e.g., Wells Fargo, HSBC, Commonwealth Bank of Australia) account for almost half of Financials; “Investment Banking & Brokerage” represents just 4%.
Michael Geraghty is the Global Markets Strategist at Cornerstone Capital Inc. He has over three decades of experience in the financial services industry including working as an investment strategist at UBS and Citi. [/groups_member]