State Street: Time for a spring clean

By Alexis Marinof, managing director of State Street Global Advisors and EMEA head of SPDR ETFs.

Historically, studies have shown that asset allocation accounts for approximately 90% of the variation of all returns.

One result of the Federal Reserve’s actions in December is that it has afforded investors the opportunity to re-examine, re-allocate and spring clean their portfolios, ready for a new year and a new era of US monetary policy.

Time to play developed markets
Investors should be prepared for a 2016 characterised by an environment of ‘low and slow’: low growth, subdued inflation, and limited policy tightening.

According to the International Monetary Fund (IMF), the global economy is set to grow at a modest pace of around 2.5%2, and expectations of continued policy support remain strong, making the case for leveraging growth beta via equities particularly compelling at the moment.

Broad equity exposures have become more appealing thanks to the macro drivers that have characterised markets since the financial crisis; and indices such as the MSCI ACWI (All Country World Index) offer an efficient way to capture global beta, seek long-term portfolio growth and diversify internationally.

Whilst enabling investors to access global equities through one investment, instead of attempting to time narrower segments of the market.

Given the growth landscape is skewed to developed markets, indices such as the MSCI ACWI (which is comprised roughly of 85% developed markets) are an ideal way to seek return maximisation from core developed while benefiting from a limited exposure to emerging markets, should they recover.

Market timing with emerging markets is notoriously difficult, particularly given the outlook for the region remains uncertain.

Policy and performance from China is likely to continue to dominate, and should confidence turn the corner, such an exposure is well-placed to capture the potential upside.

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