As we emerge from the pandemic shutdown in 2021, we believe investors should prepare for a more cyclical rebound with a better economic growth environment. Jeremy Schwartz provides a solution for investors seeking to gain more cyclical exposure in their portfolios.
In a few weeks, voters will put an end to what has been the most entertaining, and ultimately depressing, presidential campaign in our lifetime; shortly thereafter, the nation’s focus will shift from personalities to the legislative priorities of the next president.
One of the most important themes impacting the global markets has been the strengthening U.S. dollar, a trend that WisdomTree expects to continue for some time. One consequence in terms of investor positioning has been a surge in flows and interest in currency-hedged international investment strategies. But this also has put pressure on the U.S. economy, revenue of American companies as well as corporate profits.
In a press conference on September 17th, U.S. Federal Reserve chairman Jenet Yellen justified the decision to delay hiking interest rates by pointing to global growth concerns. She highlighted how the improvement in the U.S. on a standalone basis likely warranted a hike in interest rates by the Fed.
The U.S. dollar has become one of the critical macro drivers of the markets. A weakening Japanese yen started some of this latest macro trade in 2012—as the yen weakened and Japanese stocks soared over the last two-and-a-half years. Currency influences returns of stocks or markets when in the case of large exporters that derive much of their sales from foreign markets.
There have been two very important trends in the asset management and exchange-traded fund (ETF) industry WisdomTree has pioneered over the last decade: rise of smart beta, and the use of currency-hedged equities. WisdomTree believes a third new category that incorporates important elements of both trends by providing unique U.S. equity factor exposures related to currency sensitivity.