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Bracing for Turbulence
Whether the calm turns out to be fleeting remains to be seen. Extended U.S. equity valuations, overdependence on global easing, protectionist trends, negative surprises from China or elsewhere—all could foster renewed turbulence, as could politics. As I write, the U.S. presidential race is closing in on its final sprint, with the two major candidates wrestling for advantage. The outcome and resulting balance of federal power will likely provide some near-term volatility as investors weigh the impacts. More concerning, in my view, is the long game, and whether the two parties can work together to get things done. Gridlock, although actually appealing for a time, has outlived its usefulness, and our leaders need to address the important economic issues that face the country.
In this issue of Investment Quarterly , we provide a mix of timely and strategic insights: why asset allocation, despite a tarnished reputation, remains crucial to investors; whether the classic “four percent rule” on retirement withdrawals still makes sense; the risk/return benefits of option “PutWrite” strategies; the election’s potential effects on municipal bonds; and the ramifications of proposed regulations affecting the use of discounting in estate planning. We hope you enjoy IQ . Please contact your Neuberger Berman representative with questions about the markets or your portfolio.
Highlights from the Asset Allocation Committee 4Q2016
U.S. equities : Valuations are relatively high and earnings have continued to be revised downward. For the first time in this cycle, the Committee downgraded its view on all U.S. equity markets from neutral to a slight underweight.
Emerging markets equities : Helped by a rebound in local currencies and commodity prices, the asset class has fared well so far this year. Upgraded from neutral to a slight overweight, although China remains a risk.
Commodities : The commodity complex has rebounded since early February on the weakening dollar and the decline in global growth concerns. Upgraded from neutral to a slight overweight.
Public real estate : Investors’ ongoing search for yield has made valuations richer, although continued low rates and demand for yield could remain supportive. Downgraded from neutral to a slight underweight.
High yield : There may still be some room to run, as spreads are within historical ranges, but the asset class’s had a strong run. Moved from a slight overweight to neutral; security selection remains important.
Read More
Market Focus
Option Investing—Writing a New Role in Portfolios
Asset Matters
Can Asset Allocation Steer the Right Course?
Sector Spotlight
Munis and the Presidential Election
Financial Fitness
The Four Percent Rule Revisited
Trust Company Corner
The Countdown Begins on Limiting Key Valuation Discounts
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