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Without doubt, 2019 was a stellar year for equities – especially U.S. equities, which have enjoyed one of the longest bull markets in history. With ample support last year from the U.S. Federal Reserve, U.S. markets seemed to hit record highs almost every week.
Looking forward, however, the gains of 2019 might be hard to repeat. The global economy still faces a number of challenges, including slowing global growth post-COVID-19 and a host of geopolitical concerns – from Brexit and Hong Kong to growing hostilities in the Middle East.
Given these developments and outlook, we believe investors should consider a more diversified investing approach for better risk-adjusted returns in 2020.
International equities
One of the cardinal rules of investing is “don’t put all your eggs in one basket.” While U.S. markets have delivered strong returns over the last decade, that hasn’t always been the case. And yet recency bias may be leading some investors to become overexposed to U.S. equities. Given many of the stretched valuations in U.S. markets, now may be the right time to consider rebalancing one’s equity portfolio to ensure better diversification. For attractively-priced opportunities, it might be wise to look beyond North America.
Global infrastructure
When it comes to alternative assets, infrastructure has long been a staple for pension plans and foundations, which understand the asset class’s compelling diversification benefits. As an asset class, infrastructure delivers multiple levels of diversification: by geography, underlying assets, industry and even by market capitalization. Consequently, infrastructure assets have historically delivered lower correlated returns to traditional investments – like stocks and bonds – and reduced volatility.
According to McKinsey Consulting1, approximately $60 trillion needs to be spent over the next 10 to 20 years to ensure the essential services provided by infrastructure adequately meet society’s basic needs. Insufficient infrastructure spending across the globe thus provides an attractive long-term growth opportunity for global infrastructure companies and investors.
1. McKinsey Global Institute, June 2016, “Bridging Global Infrastructure Gaps.” Retrieved from https://www.mckinsey.com/industries/capital-projects-and-infrastructure/our-insights/bridging-global-infrastructure-gaps
Alan Green is Director, ETF Capital Markets, at Dynamic Funds. This article previously appeared in the Winter 2020 issue of Your Guide to ETF Investing, published by BrightsRoberts Inc. Used with permission.
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© 2020 by Dynamic Funds. All rights reserved. Commissions, management fees and expenses all may be associated with investments in Dynamic Active ETFs. Please read the prospectus before investing. Investments in ETFs are not guaranteed, their values change frequently and past performance may not be repeated. Certain Dynamic Active ETFs are managed by BlackRock Asset Management Canada Limited and invest in selected mutual funds managed by 1832 Asset Management L.P. Dynamic Funds® is a division of 1832 Asset Management L.P. ®Registered trademark of its owner, used under license. Views expressed regarding a particular investment, economy, industry or market sector should not be considered an indication of trading intent of any of the mutual funds managed by 1832 Asset Management LP. These views are not to be relied upon as investment advice nor should they be considered a recommendation to buy or sell. These views are subject to change at any time based upon markets and other conditions, and we disclaim any responsibility to update such views. To the extent this document contains information or data obtained from third party sources, it is believed to be accurate and reliable as of the date of publication, but 1832 Asset Management L.P. does not guarantee its accuracy or reliability. Nothing in this document is or should be relied upon as a promise or representation as to the future. Reprinted with permission. MKTGH0120C-1068362
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