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By Rene Casis - December 2019
Many of the unsettled geopolitical risks—from the U.S./China trade war to Brexit—continue to percolate as they have all year. This lack of resolution is starting to broadly impact all asset classes. That, combined with equity market volatility, have driven investment flows to perceived safer shores.
Year-to-date, flows have headed towards fixed income as investors either chase income and yield or view them as safe-haven assets. As growth slows globally, United States exposure is a bright spot even as it too experience impacts from the same unresolved risks. Digging deeper, many equity flows are in lower volatility strategies, reaching to higher volatility in the markets.
One of the things we do for our ETFs is seek out companies with higher quality compared to the broader market. In my recent video, I explain how we identify them and why these are the companies we want to own throughout all market cycles—even before tilting toward value or growth.
I think broadly, we have a lot of unsettled geopolitical risk out there. Whether it's U.S./China trade, Brexit, all of these issues have been really percolating for the entire year.
And as we're coming into the close in the final quarter of the year, many of these issues had been left unresolved and are really starting to have an impact broadly across all asset classes. Year-to-date, we've seen flows really more geared towards fixed income, whether it's because of chasing income and yield or as view of a safe haven asset.
Also interesting is that a lot of the flows globally are really pointing towards the United States as an exposure, which really demonstrates the potential for opportunity in the U.S. As the growth is slowing globally, I think the U.S. is still that shining, brighter spot. But that being said, it is continuing to slow as the impact of the geopolitical risk is really starting to take a hold.
As I dig deeper into the flows, a lot of the flows in equities are really pointing more towards low volatility strategies as a reaction to the higher volatility that we're seeing in the equity markets.
One of the things that we do for our ETFs is we attempt to identify companies that have higher quality relative to the broader market. And what I mean by that is that these are companies that have stronger balance sheets and more stable earnings growth. So, though growth is slowing broadly, we take measures to identify companies that ultimately are companies that we want to own over the full economic cycle. So, these are companies that you want to own over the long-term, before we even tilt towards value and growth.
Learn the five areas of quality our analysts use to screen the investment universe.
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Exchange Traded Funds (ETFs) are bought and sold through exchange trading at market price (not NAV), and are not individually redeemed from the fund. Shares may trade at a premium or discount to their NAV in the secondary market. Brokerage commissions will reduce returns.
References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.
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