In an aging market rally since the financial downturn, Bernstein forecasts a late cycle earnings-driven bull market for the rest of the year, with cyclicals outperforming and low-quality outperforming high-quality companies.
The survey of advisors also revealed that the majority 36% of respondents think the U.S. will have the largest opportunities for the second half of 2016, with 41% believing U.S. equity ETPs will capture the strongest inflows for the rest of the year.
Investors may also want to consider international equity exposure as foreign markets remain undervalued, Michael Jones, Chairman & Chief Investment Officer of RiverFront Investment Group, said. The MSCI EAFE Index, which tracks foreign developed markets, has shown a 6.4% total return from 1970, but the MSCI EAFE Index is currently trading 37.9% below its long-term trend.
“In our view, developed international stocks are the most attractive asset class, with corporate bonds the best bond option,” Jones said.
Related: ETF Investors Are Buying the Dips
Investors should also consider diversifying with international stocks for potentially enhanced long-term returns.
“Since 2002, a portfolio composed of half U.S. equities and half the MSCI EAFE Index would have produced a reward-to-risk ratio in excess of either region alone,” Theresa Brennan, ETF Investment Specialist at Deutsche Asset Management, said. “This was driven by the relatively low correlation between these two markets, which, over this same period, was 0.53.”
ETF investors can look to the Deutsche X-trackers MSCI EAFE Hedged Equity ETF (NYSEArca: DBEF), which tracks developed Europe, Australasia and Far East countries, as a way to gain exposure to these developed markets. DBEF also includes a currency hedged component, which may diminish the negative effects of depreciating foreign currencies or a stronger U.S. dollar.
Moreover, the Deutsche X-trackers FTSE Developed ex US Comprehensive Factor ETF (NYSEArca: DEEF) tracks an enhanced beta FTSE Russell indices that target quality, momentum, value, size and volatility – five key factors many financial institutions have looked at to help gain an edge over traditional beta indexing methodologies.
Lastly, the Deutsche X-trackers MSCI EAFE High Dividend Yield Hedged Equity ETF (NYSEArca: HDEF) can help investors target yield-generating opportunities. The undelrying high-dividend-yield index select companies with high yields and screen for quality, including return on equity, earnings variability and debt-to-equity. Additionally, HDEF utilize forward currency contracts to diminish the negative effects of an appreciating U.S. dollar or weakening foreign currencies over the short-term.
Financial advisors who are interested in learning more about market headwinds and opportunities ahead can watch the webcast here on demand.