U.S. stocks have recently outperformed non-U.S. equity markets while U.S. bonds have underperformed on a calendar-year basis. However, 2017 could indicate a turning point in equities as many international economies are now growing faster than the U.S.
Let’s take a closer look at five key reasons why investors should consider a global approach in today’s market:
Buoyed by easy monetary accommodations, global economies are finally experiencing simultaneous growth. And while the U.S. is still the largest economy in the world, its lead continues to shrink as some emerging market regions more rapidly expand their economic output.
Also supporting continued, global economic growth is the powerful structural trend of a growing middle class in developing nations. A stronger and larger middle-class population translates to greater consumption-related expenditures, which could in turn benefit global companies looking to tap this trend.
Accommodative monetary policy has pushed interest rates to historically low levels, and into negative territory in some regions. With over 60% of today’s bond opportunities coming from outside the U.S., investors should consider a global “core” allocation to help diversify interest-rate risks and seek higher return or yield potential. It’s important to note that diversification cannot assure a profit or protect against loss.
By taking a global approach, investors can expand their opportunity set for growth or income in their equity portfolios. For example, emerging market equities currently are less expensive relative to developed markets, and non-U.S. companies historically have been a good source of dividend income.
Although global economies and central banks are currently supportive of risk assets, no one can predict when market sentiment will turn. In extreme periods of volatility, correlations among traditional asset classes increase, intensifying a portfolio’s drawdown. Investors should consider incorporating a flexible, global alternative strategy that focuses on volatility management to help mitigate “tail” risks, with a return stream uncorrelated to traditional asset classes.
Alicia Levine, Market & Portfolio Strategist at BNY Mellon Investment Management, explains that investors with a domestic-only focus could limit their ability to seek investment opportunities and risk-adjusted returns elsewhere. Watch Alicia’s video.
BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation. BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, encompassing BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies.
Equities are subject to market, market sector, market liquidity, issuer, and investment style risks to varying degrees. Bonds are subject to interest rate, credit, liquidity, call and market risks, to varying degrees. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes and rate increases can cause price declines. Investing in foreign denominated and/or domiciled securities involves special risks, including changes in currency exchange rates, political, economic, and social instability, limited company information, differing auditing and legal standards, and less market liquidity. These risks generally are greater with emerging market countries.
Views expressed are those of the advisor stated and do not reflect views of other managers or the firm overall. Views are current as of the date of this publication and subject to change. Forecasts, estimates and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Please consult a legal, tax or investment advisor in order to determine whether an investment product or service is appropriate for a particular situation. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. MBSC Securities Corporation are subsidiaries of BNY Mellon. ©2017 MBSC Securities Corporation, 225 Liberty Street, 19th Fl., New York, NY 10281.