When it comes to investing in 2017, State Street Global Advisors’ (SSGA) exchange traded fund (ETF) business, SPDR says investors should seek income opportunities, consider investment in real assets and mitigate risk through gold and smart beta strategies.
In SPDR’s 2017 investment outlook report, it highlighted that we were in a “new abnormal” period of slow growth and low (even negative) interest rates, and investors should expect modest economic growth in the new year.
SPDR said stimulus in the US with monetary policy, tax reforms and increased infrastructure spending would boost growth in the short-term. However, there would be longer term fiscal implications, as we lived in a world that already had too much debt and an uncertain future.
For 2017, SSGA said they favoured value over growth, and credit and high yield investments over government bonds. In government bonds, they favoured Treasury inflation protected securities (TIPS) as SSGA expected the Fed would hike rates twice in 2017, as inflation moved higher.
When it came to asset classes that would generate the best returns for 2017, their report stated that the best return of six per cent would be from emerging market equities, followed by US high yield, with a return of 5.1 per cent.
However, over the next three to five years, emerging market equities would generate 9.6 per cent per annum, far ahead of the next best projected leader (US small caps with 6.7 per cent).
SSGA also forecasted that value tilted factors would yield 4.8 per cent, followed by 3.9 per cent for quality tilted factors over 2017.
The company also advised to look beyond TIPS and invest in real assets that would make portfolios more resilient to the growing risk of inflation.
Meanwhile, investors should also consider an allocation to gold, as it had a historically low correlation to stocks and bonds. Investors could also consider lower risk multi-factor smart beta strategies as they tended to mitigate headwinds from volatility, SPDR said.
