Ahead of the New Year one of the world’s largest asset managers has spurred investors to adapt their strategy to a changing investment environment.
State Street Global Advisers (SSGA) has highlighted the election of Donald Trump as a "significant game changer", saying it is bullish on US growth in 2017.
“We certainly favour US equities, and much of that is due to the potential for Donald Trump and the Republican House [of Representatives] and Senate, so it looks like we're going to see expansionary fiscal policy, and it looks like there might be a dialling back of some regulation,” SSGA head of ETF strategy Matthew Arnold said.
While Trump’s cabinet nominations are yet to be confirmed, his choices thus far are encouraging for US growth prospects, according to Mr Arnold.
“If you look at Trump's cabinet everyone's a CEO, businessman, billionaire... you name it. There's a strong focus on growing the economy, and we think US equities will certainly benefit from that, but potentially not global markets,” Mr Arnold said.
“A negative part of Donald Trump's sort of agenda would be if he pulls back on trade deals, which is not going to be favourable for those big global players if we see anything like a trade war. So we have seen that since [the election of] Trump US small cap stocks have significantly outperformed,” he added.
The US Fed’s decision to raise rates earlier this month and indications that they were on a rate-hiking path looking forward means it may be time for investors to prepare for a new environment.
“For investors that are yield-orientated, such as retirees and those with pension funds, it might be time to shift some of that income portfolio into assets that benefit from a rising rate and rising inflation environment,” Mr Arnold said.
“With equities, we think rather than focusing on pure dividend yields, focus on yield sustainability and companies that can grow their dividends over time,” he added.
With President Donald Trump inaugurated on January 20, it’s an important reminder to investors to expect the unexpected.
“We always emphasise this, but this year has really shown the importance of having a diversified portfolio," Mr Arnold said. "You never know what might happen and that's particularly relevant as we head into next year.”
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