How to improve your 2017 investment game plan

What’s your game plan for 2017?

For Canada, reflation and bottomed-out interest rates bode well for risk assets such as equities, credit and selected alternatives, reveals BlackRock’s 2017 investment outlook. But prepare for a leaner, potentially meaner investment environment after a fairly impressive showing in Canada’s financial markets in 2016.

Read: Why it’s not too late to buy Canada

That said, Canadian infrastructure and fiscal stimulus will provide a downside cushion. Consider that a cheaper loonie, along with U.S. resilience benefits exports, and a reflationary global economy means greater demand for energy and industrials.

Also, the monetary policy divergence between Canada and the U.S. will keep the loonie under modest pressure, but any rise in crude supports the Canadian dollar.

To meet the challenge of rising rates, BlackRock recommends a flexible strategy: preserve capital by adjusting portfolios for interest rate risk and exploit increased dispersion of securities across sectors globally.

Read: 2017 investment preview

Here’s a summary of BlackRock’s key views for 2017:

• Reflation implications. Global bond yields have bottomed. Look for opportunities in equities over fixed income, and in credit over government bonds.
• Low returns. Structural factors such as aging societies and weak productivity growth lead to a drop in economic growth potential. This limits real yields. Get rewards from taking risks in equities, emerging markets and private market alternatives.
• Wider dispersion. The gap between equity winners and losers will widen under fiscal and regulatory changes. An unstable relationship between bonds and equities challenges traditional diversification. Read: Should you stay benchmarked to the market?
• Rising risks. From uncertainty about U.S. president-elect Trump’s agenda to European populism, political and policy risks abound.
• Market favourites. Developed market equities will move higher in 2017 and you should prefer dividend growers, financials and health care. In fixed income, favour high-quality credit and inflation-linked securities. Japanese and emerging market equities present opportunities but also risk in the form of potential trade tension.

In line with BlackRock’s views, global institutional investors say they’ll rely on active management and alternative assets to manage political and policy risks and boost returns in 2017, finds a study by Natixis Global Asset Management (GAM). Within alternatives, 32% say private equity will perform best, including media, telecom, infrastructure and health care.

Read: Institutional investors expect more changes to asset allocations

They’ll also look for opportunities in emerging market equities and financials. Among stocks, 39% predict emerging markets equities will be the biggest gainers. Among bonds, 53% think high-yield issues will outperform.

Their predicted losers are U.S. stocks (named by 41%), medium- to long-term government bonds (67%) and, among alternatives, real estate (29%).

The Natixis survey is based on responses from 500 institutional investors in North America, Latin America, the U.K., Continental Europe, Asia and the Middle East. Read the full Natixis report here.

Read BlackRock’s investment preview here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.