Global X Funds
Build a Portfolio to Capitalize on Long-Term Trends
For the past eight years, investors have enjoyed the rewards of portfolios with broad U.S. equity and fixed-income exposure, but it may be time to alter that approach. U.S. equity valuations are at or near their peak—forward price-to-earnings ratios are about 20% higher than their historical 10-year average—and with bond yields gradually on the rise, trouble may be ahead for traditional fixed-income investments.
How can investors position themselves to achieve their portfolio goals when both major asset classes have worrisome characteristics? Invest with intention: Seek investments or strategies that hone in on specific results, whether that’s growth, income or alignment with one’s personal values. For growth seekers, one strategy is to focus at least a portion of their portfolios on investments that stand to benefit from long-term trends, such as emerging disruptive technologies that can take market share from existing well-entrenched companies. Other avenues for investors to potentially accelerate their portfolio’s growth include strategies that ride on changes in demographics and consumer behaviors, such as the rising spending power of the millennial generation.
That is, finding growth in 2017 and beyond means “looking for areas of the economy with strong tailwinds that can do well even if broader returns are slow,” says Jay Jacobs, director of research at Global X Funds in New York, which offers, among its 55 funds, several that provide exposure to specific long-term themes.
“When people are investing for a specific goal such as growth, they need precise tools to do so. We think there are growth opportunities in long-term, structural, thematic trends,” Jacobs says.
For example, Global X’s Millennials Thematic ETF (MILN) invests in companies that are likely to benefit from that generation’s unique spending patterns and behaviors—patterns and behaviors that are driven in part by the fact that millennials are tech savvy, focused on health and wellness, physically mobile, and prefer experiences over goods. The fund’s current holdings include Amazon, Netflix, Apple and Facebook.
And about those disruptive technologies? Think solar and wind companies in the alternative energy space, or the various categories that are likely to fuel the growth in driverless cars: semiconductor manufacturers, the makers of mapping technology, and robotics and artificial intelligence companies. Other companies to consider under the theme of disruptive technologies include lithium mining companies and battery producers, fintech companies, and social-media companies.
“These are the tech themes that we see emerging over the next decade,” Jacobs says. “The value proposition of that technology is there and it’s starting to reach a scale where it becomes affordable and very disruptive.”
If this sounds like a long-term outlook, that’s because it is. A patient approach can be advantageous to investors, because much of that growth isn’t yet priced into the market. “The market continues to see shorter and shorter holding periods and is more focused on quarterly earnings and what’s happening in the news,” Jacobs says. “If you’re able to take a longer term approach and be very patient with returns, that can be a huge advantage that’s rewarded in the markets.”
Of course, some investors are more interested in generating income and preserving capital than they are in growth. Still, even those goals are likely to be sorely tested by rising rates in coming years. For them, bond alternatives, such as high-dividend stocks, preferred stock, REITs and master limited partnerships are areas to consider. With decent GDP growth, low unemployment, and the glimmer of inflation ahead, dividend stocks and similar investments could appreciate, even if the income component of those stocks is somewhat constrained by rising rates. Still, investors should keep in mind that these bond alternatives carry the risk of having more equity-like risk characteristics than bonds.
Another potential way to invest with intention is for investors to consider “SRI” investing: funds that focus on sustainable, responsible and impact investing. Adding an SRI tilt “is going to become increasingly popular in 2017,” Jacobs says. That can mean a focus on corporate governance, environmental policies or personal values (for example, Global X offers a Catholic Values ETF and a Conscious Companies ETF).
“People are looking for more meaning in investing than just growing their assets. If they can not only stay invested in the markets, but also express what’s important to them, or their personal beliefs, through their investments, I think that’s going to become increasingly popular,” he says.
Global X is a New York-based provider of ETFs, with more than 50 funds available across U.S. and foreign exchanges, spanning a range of investment types, including smart core, income, alpha, risk management and access ETFs.
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