Every year, Northern Trust’s FlexShares develops a forward-looking, historically aware outlook for global economic and market activity. In these uncertain times, many investors are seeking to gain a more balanced and global understanding of the trends that could be impacting their portfolios both now and in the future.
In the upcoming webcast, Riding the Trends: Five Year Outlook, Dan Phillips, Director Asset Allocation Strategy at Northern Trust Asset Management, will discuss these key trends that may shape the economic and market landscape during the next five years.
As investors are faced with an increasingly volatile market environment, one may turn to quality and low-volatility ETF strategies, such as the FlexShares US Quality Low Volatility Index Fund (NYSE: QLV), FlexShares Developed Markets ex-US Quality Low Volatility Index Fund (NYSE: QLVD) and FlexShares Emerging Markets Quality Low Volatility Index Fund (NYSE: QLVE).
The three ETFs utilize a quality screen to provide exposure to high-quality companies with lower absolute risk, thereby limiting potential future volatility. The quality screen analyzes a broad universe of equities based on key indicators such as profitability, management efficiency, and cash flow, and then excludes the bottom 20% of stocks with the lowest quality score. The index is then subject to regional, sector and risk-factor constraints, in order to manage unintended style factor exposures, significant sector concentration, and high turnover.
Quality should not be conflated with low volatility, but there are times when quality stocks display low volatility traits. That was the case during the fourth quarter of last year market swoon, indicating that the quality factor can provide some protection during times of elevated market stress.
Alternative assets or sector investments can also act as another layer of diversification in a traditional portfolio mix. For example, infrastructure ETFs, such as the FlexShares STOXX Global Broad Infrastructure Index Fund (NYSEArca: NFRA), offer investors sound fundamentals and above-average dividend yields, making the asset class appealing in the current market environment. NFRA tries to reflect the performance of the STOXX Global Broad Infrastructure Index, which identifies equities that derive the majority of revenue from infrastructure business, providing exposure to not only infrastructure sectors, but non-traditional ones as well.
Fixed-income investors should also begin to look for strategies that are better able to adapt to swiftly changing market conditions. For instance, the actively managed FlexShares Core Select Bond Fund (NYSEArca: BNDC) looks to provide attractive risk-adjusted performance by investing in a portfolio of fixed-income securities and is designed to achieve optimal potential for return. Moreover, the active component will adjust to potential changes in interest rate levels, the shape of the yield curve and credit spread relationships while emphasizing liquidity and diversification.
Financial advisors who are interested in learning more about market trends ahead can register for the Tuesday, September 10 webcast here.