The world is changing — and becoming more challenging for growth investors. Economic and geopolitical uncertainty are likely to weigh on corporate earnings and, ultimately, equity prices.

What are today's growth challenges?

What worked in the past may not work going forward given today’s challenges. We can help adapt your growth strategy to address these challenges:

  • Returns are harder to find. We believe traditional stock/bond allocations could return less than their long-term average, especially after fees and taxes.
  • Taming your downside. Diversification of assets is typically deemed the best weapon against higher volatility. But for diversification to be effective, it must be well executed — and that is growing increasingly difficult.
  • Global opportunities and risk. While U.S. stocks may offer the potential for attractive long-term returns, you should be more selective about domestic exposures and consider attractively valued international equities.

 

Looking for higher returns

In a low return world, outperforming the market becomes even more critical. Investors can no longer rely on broad market returns.

BROAD MARKET RETURNS ARE LIKELY TO BE LOWER THAN IN RECENT HISTORY

Chart: Broad market returns are likely to be lower than in recent history

Source: Morningstar. Above chart shows average annualized returns for the time periods shown. U.S. Equities represented by the S&P 500 Index. Global Equities represented by the MSCI ACWI Index. Past performance does not guarantee future results. Index performance is shown for illustrative purposes only. One cannot invest directly in an index.

 

Look to our high-conviction strategies that seek to outperform their benchmarks through diverse markets:

Managing volatility

The last decade suggests investors are expanding their diversifications into equity categories, the result being greater risk exposure.

EQUITY FUNDS HAVE GOTTEN RISKIER OVER THE YEARS
Volatility profile of all stock fund assets relative to the S&P 500 Index

Chart: Volatility profile of all stock fund assets relative to the S&P 500 Index

Source: Morningstar, as of 12/31/15. Represents 10-year standard deviation of equity mutual fund and ETF assets. Universe of funds is represented by the Morningstar Broad Equity Category distinct share class only. Same Risk is defined by funds and ETFs with a 10-year standard deviation between 14.72 and 14.76. Higher Risk is a 10-year standard deviation of 14.77 or higher. Lower Risk is a 10-year standard deviation of 14.71 or lower.

 

Investors may need to allocate across unconstrained and low volatility strategies to help manage volatility and provide better diversification:

Global opportunities

Diverging economies and monetary policies are creating risks and opportunities for global investors. But you need to be selective in where you take your risk when searching for higher returns.

SELECTIVITY IS KEY
Global stock valuation percentile relative to historic norms

Chart: Selectivity is key

Source: Thomson Reuters, BlackRock Investment Institute, as of December 2015. Note: The percentile bars show valuations of assets as of 12/31/15 versus their historical ranges. For example, U.S. equities are currently in the 74th percentile. This means U.S. equities trade at a valuation equal to or greater than 74% of their history. The dots show where valuations were a year ago. Equity valuations are based on MSCI indexes and are an average of percentile ranks versus available history of earnings yield, trend real earnings, dividend yield, price to book, price to cash flow and 12-month forward earnings yield. Historical ranges extend back anywhere from 1969 (developed equities) to 2004 (EM$ debt).

 

While U.S. stocks may offer the potential for attractive long-term returns, you should be more selective about domestic exposures and consider attractively valued international equities:

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