While we believe that European policy makers will ultimately engineer a rebound in inflation and a depreciation of the euro against the U.S. dollar in the long run, investors should consider increasing allocations to euro-denominated debt as a way to opportunistically trade on Draghi’s reluctance.
With valuations stretched, should one abandon small caps entirely? Small caps have a history of performing well during periods of rising rates and economic recovery—and I don’t think it is prudent to abandon small caps entirely because of more expensive valuations, but rather to search for pockets of potential value within small caps.
Recent earnings announcements coupled with rising payments of cash dividends indicate that the problems many have forecasted have yet to materialize and these stocks may indeed represent significant investment opportunities.
The recent months have seen a wide proliferation of the term “smart beta,” which in its simplest terms indicates an index construction that does not weight constituents by market capitalization but incorporates some type of rules-based rebalancing process.
In today’s environment, investors are interested in positioning their portfolios for the inevitable normalization of interest rates as the Federal Reserve winds down its quantitative easing program. One particular area of focus have been equities that exhibit dividend growth—made attractive not only because of the current income but also because of the potential for future growth of that income.