As investors take a hard look at their investment portfolios to potentially rebalance positions for the year ahead, people may consider exchange traded funds to better capture value and diversify across the global market.
The markets have seen benchmark equity indices flatten out after a multi-year rally, U.S. Treasury yields stubbornly hold on to record low levels, the U.S. dollar strengthen against foreign currencies and crude oil prices plunge over the past year.
On the recent webcast, The Big Picture: Year-End Review and 2016 Outlook, Ron Saba, senior managing director of investment and CIO for Horizon Investments, pointed out that U.S. markets have been meaningfully outperforming international markets ever since the Federal Reserve enacted its unprecedented loose monetary policy.
However, after the impressive growth spurt in the U.S., valuations at home are beginning to look pricey, whereas international valuations remain low. While investors may see a more attractive value play overseas, people will still have to contend with currency risks, notably a strengthening U.S. dollar.
“Dollar appreciation contributed to international equity underperformance,” Saba added.
Nevertheless, investors may still enjoy some growth at home. John Eckstein, chief investment officer at Astor Investment Management, said that his firm’s proprietary Astor Economic Index, which analyzes data indicators tied to the economy, currently shows that while we have fallen off from strong growth at the start of the year, the index still suggests U.S. markets could experience above average growth.
Jim Ferrin, chief investment officer at Quantitative Advantage, also pointed out that U.S. large growth stocks currently show higher momentum than U.S. large value stocks. Looking at overseas markets, Ferrin noted that developed market Europe, Australasia and Far East stocks, especially small-cap EAFE stocks, are exhibiting greater momentum than the emerging markets, which have seen their momentum indicators decline over the past couple of weeks.
With the year end just around the corner, investors may begin fine-tuning portfolio positions and even capitalize on tax-loss harvesting.