2019 outlook: active selection is essential
In the coming year, we expect to see lower correlations, higher volatility and lower returns, particularly for equities. Our 2019 outlook explores why active investing is likely to be essential.
Higher interest rates in the US – and less quantitative easing from the US Federal Reserve and European Central Bank – will likely reduce liquidity and create higher market volatility for investors in 2019. Because navigating the markets successfully may take greater skill, we believe investors should consider actively selecting where to invest, rather than passively accept market returns – understanding there is no guarantee that any type of strategy will outperform.
The global economy – which has been doing fairly well – is likely to become even less synchronised and more fragmented. This would continue a trend that began in earnest in 2018 as market returns turned negative. Trade tensions and political uncertainty are set to be primary drags on performance, while high oil prices and tight labour markets in the US, UK, Germany and Japan could heighten fears of rising rates and inflation.
In recent years, investors have been able to follow the herd as markets have risen, but continuing that approach now will likely destroy value rather than create it. As we enter into a period of lower cross-asset correlations, higher volatility and lower returns – particularly for equities – active asset allocation and active security selection is likely to become increasingly important.
Some or all the securities identified and described may represent securities purchased in client accounts. The reader should not assume that an investment in the securities identified was or will be profitable. The securities or companies identified do not represent all of the securities purchased, sold, or recommended for advisory clients. Actual holdings will vary for each client. FANG is an acronym widely used on Wall Street and among many investors; it stands for four high performing large cap technology companies – Facebook, Amazon, Netflix and Google (now Alphabet) – that are also household names. BAT is a similarly widely used acronym for three large cap tech companies in China: Baidu, Alibaba and Tencent.
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