We see a positive outlook for 2017 but this by no means invites complacency - the need for investors to rethink their investment approach will be more important than ever in 2017.
In our view, the outlook for the US equity market is positive as the US election result raises the likelihood of a major fiscal stimulus that has the potential to provide a significant boost to growth. We also see reasons for optimism in Europe, however, we are mindful of the political risks in the region.
While there is uncertainty over Trump’s trade policies, we believe that structural changes in emerging market economies will help them to weather any potential storm. However, in our view this does mean that it is more essential than ever to be an active investor in emerging markets.
We expect an intensification of key challenges facing fixed income investors (low or negative rates outside the US; increased market risk; fractured liquidity). To meet these we think investors should: trade less and build safer, higher-quality portfolios via fundamentals-driven portfolio construction; and embrace credit risk, moving further down the credit curve than investment grade where duration risk dominates and will not, in our view, reward investors.
Taking into account all of the above, we think that in 2017 and beyond investors will need to focus on the distinct outcomes they want to achieve and split their portfolios into different components, accordingly. Read more here.