February 7, 2017
While we are generally constructive about the global economy and overall market performance, the public markets are not cheap and we expect mid to upper mid-single digit performance for globally diversified portfolios.
Below are a few comments for 2017:
- The global macro-economic environment is positive but still somewhat fragile-although the largest risks appear geopolitical rather than economic.
- Much will depend on how quickly (or not) Trump can get his agenda implemented-and that potentially cuts both ways (positive and negative).
- The BoE, ECB, BoJ, and PBoC will remain accommodative into the foreseeable future, driving increased volatility.
- Equity valuations still look stretched to us as growth outpaces earnings and GDP growth, but we remain modestly constructive for the year, with the US and EM outperforming EAFE again (though we expect some improvement in EAFE performance).
- Increased volatility and security performance dispersion should mean a better year for active and alternative managers.
- We believe there is significant price risk in public fixed income-maybe a little more play in high yield because of its embedded duration hedge, but there is not too much to be excited about.
- We think there are better opportunities in the private equity and private credit spaces for investors who can access them and can handle the illiquidity.
- 2017 should be a better year for alternative investments, but we are more optimistic about hedge funds than liquid alternatives because of the liquidity and leverage constraints associated with mutual funds.
We remain constructive about real assets and the commodity complex, especially if global growth picks up.