“Depending upon policy decisions, how earnings proceed and the current state of political schadenfreude plays out, there may be times when the markets’ skis hit an icy patch and blow out the edges a bit,” Bartolini said.
Furthermore, Bartolini also saw opportunities in international equities, and more investors are diversifying into global markets through country-specific ETF picks to better manage their exposures.
“As the global synchronized growth story continues, this trend may continue. Furthermore, the EM segment should continue to be supported by a weak dollar, higher commodity prices and a resurgence in global trade. Stretched valuations in the US make this even more attractive on a relative basis,” Bartolini said.
Nevertheless, U.S. investors with a large home bias may want to focus on larger companies. Large companies continue to beat small-caps, and most of the January inflows also reflect a greater large-cap preference among ETF investors.
“This trend is indicative of the markets’ view on the impacts of tax reform (favoring corporations more than consumers), as the more globally oriented large-caps have also outperformed the more domestically focused small-caps by 3.2 percent since the bill was passed,” Bartolini added.
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