ACTIVELY CAPITALIZING ON A NEW MARKET REGIME
Investment implications and opportunities amid new macro realities
A BUMPY ROAD TO A NEW PARADIGM
Markets rebounded in 2023 as central banks signaled an impending conclusion to the interest-rate hiking cycle. While resilience and moderating inflation have been prominent economic themes, heightened geopolitical risks and softening consumer trends add uncertainty to the outlook.
ACTIONABLE IDEAS
Step out of cash
Elevated inflation and higher yields make it harder stay in cash. Shorter duration assets can provide attractive income with cushion against further volatility.
Asset classes to consider:
- Ultra-short bonds
- Short-term corporate
Extend duration
With the Fed hike cycle nearing an end and markets pricing in rate cuts in 2024, investors may benefit from extending duration now and locking in higher rates.
Asset classes to consider:
- Multi-sector bonds
- Intermediate bonds
Seek high-quality relative value opportunities
Extreme volatility since 2022 has compressed valuations across fixed income sectors, creating attractive relative value opportunities in key spread sectors.
Asset classes to consider:
- High yield bonds
- Emerging market debt
FOCUS ON STRUCTURAL TRENDS WITH RESILIENT DEMAND
Major transformative changes are afoot globally in areas with resilient demand and growth that do not rely on the economic environment. Structural changes, including digitalization and demographic trends, are changing the investment landscape across industries.
Asset classes to consider:
- U.S. growth stocks
- Global equities
- International equities
- Emerging market equities
- Public REITs
Diversify with alternative return sources
Public markets are vulnerable to short-term market noise with prices often overshooting to the downside based on shifting investor sentiment. Private markets benefit from a longer-term view and less frequent mark to market, often providing investors a smoother ride.
Asset classes to consider:
- Private credit
- Private real estate
TAKE ADVANTAGE OF VOLATILITY TO REDUCE TAX BILLS
After a banner tax-loss harvesting year in 2022, opportunities were more muted in 2023 as markets saw a broad-based rally through much of the year. But a slowing economy and rising geopolitical risks may lead to better tax-loss harvesting opportunities in 2024.
Asset classes to consider:
- Direct indexing
THINK BROADER TO IMPROVE RETIREMENT OUTCOMES
While moderating, inflation is likely to remain elevated for the foreseeable future, leading to a higher interest rate regime coupled with lower expected traditional asset class returns. As this can be challenging for a traditional 60/40 allocation, long-term investors may benefit from including hedging assets into their retirement allocations.
Asset classes to consider:
- Real assets
1 While all investors potentially can benefit from a direct indexing strategy, the value of tax losses and after-tax returns decrease as an investor’s tax rate decreases.
Risks—Investing involves risks. Some investments are riskier than others. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost. Fixed income investments are subject to interest rate risk, and their value will decline as interest rates rise. Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, and political and economic uncertainties. Investing in emerging markets is very risky due to the additional political, economic, and currency risks associated with these underdeveloped geographic areas. Investments in growth stocks may be especially volatile. Value investing involves the risk that undervalued securities may not appreciate as anticipated. It may take a substantial period of time to realize a gain on an investment in a small or midsized company, if any gain is realized at all. Real estate investment trusts (REITs) may not be suitable for all investors. There is no guarantee a REIT will pay distributions given the inherent risks associated with the market. A REIT may fail to qualify as a REIT as defined in the Tax Code, which could affect operations and negatively impact the ability to make distributions. There is no guarantee a REIT’s investment objectives will be achieved. Diversification and asset allocation do not guarantee profit or protect against loss.
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