Executive Summary
- 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%.
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