Economic and Market Commentary
Below is the most current five-year global market return outlook from Blackrock. Here are the Cliff notes...an increase in Developed International and Emerging Market stocks and a reduction in High Yield and Emerging Market bonds.
At RAA, we have not shifted away from international stocks. Since earlier this year, we have been increasing our international stock exposure; both developed countries and emerging markets. Next month with be 1 year since the historic Brexit. Pundits and investors both thought that the surprise Brexit would be the needle that broke the camel's back. Guess what...as events like Brexit often do; it was a terrific buying opportunity for those willing to wait a while and stomach a little volatility.
We have been very cautious with regard to high yield bonds. Your parents probably taught you some basic life lessons. Look both ways before you cross the street. Cover your mouth when you cough. Don't buy high-yield debt securities when the yield spread between them and Treasuries is too low. Just as the stock market's price-to-earnings ratio can be a warning sign, so can the yield spread on junk bonds. And right now, that sign is flashing red. Currently, our only direct exposure is through short term, higher quality high yield bonds and floating rate notes. In addition, we have reduced exposure to small cap stocks in favor of mid cap and large cap.
At RAA, our Core philosophy follows much of what Blackrock dictates. Our Satellite strategies are more proprietary and are designed to attempt to further diversify, reduce risk, generate income and add incremental return over time.
Our Core/Satellite approach will typically invest approximately 70% of one's portfolio in Core investments and approximately 30% in Satellite investments. Core investments follow a longer-term asset allocation plan and are invested in broadly diversified, low cost ETFs, mutual funds and individual stocks. Satellite investments are more tactical and may have a shorter-term investment horizon. Satellite investments may include ETFs and mutual funds with a narrower focus, sector ETFs, individual stocks, business development companies, MLPs, REITs or closed-end funds.