It may be time to rethink popular portfolio strategies for the low interest rate environment.
The Federal Reserve cut interest rates by half a percentage point on Wednesday, signaling its first move in more than four years to cut interest rates. According to VanEck CEO Jan van Eck, investors should start thinking about how the changing environment will affect their investments in the coming year.
“Investors have to look at their equity book and say, ‘How can I build that to last through next year’s cycle?'” he told CNBC’s “ETF Edge” last week. “Just buying the S&P alone is a risky strategy right now.”
I S&P 500 closed 1.4% higher for the week, and the small cap Russell 2000 ended up at 2.1%. Jon Maier of JP Morgan Asset Management suggests that the last index’s performance could last as prices fall.
“We will be in an easing cycle, so smaller companies will benefit from lower interest rates,” said the firm’s chief ETF expert.
But it’s not just equity strategies that experts suggest revisiting. Investors may start reducing their holdings, too. While the average return on the 100 largest money market funds still sits above 5%, according to Crane Data as of Friday, Maier expects to see some of that money return to bonds.
“Fixed income is the area that’s seeing the most outflows right now because of the rate environment, and that’s going to continue,” he said. “About six and a half trillion in money market capital, most of that will go into long-term fixed income, or other equity areas.”
With prices finally starting to come down, van Eck points to federal deficits as the next potential challenge for markets. He sees reason to stick to some popular portfolio areas amid a broader restructuring.
“Can the government continue to stimulate the economy and spend more money than they receive from tax money? Our answer is that that would create a lot of uncertainty. Gold again bitcoin That would be great,” said Van Eck.
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