Matthew Bartolini, Head of SPDR Americas Research at State Street, met with Julie Cooling, Founder & CEO of RIA Channel, to discuss key factors advisors should consider as they navigate the market for the remainder of 2020.
As 2020 progresses, investors will be forced to grapple with the rally of risk assets and the decline of fundamentals. The market is at an inflection point and investors must prepare to respond to the uncertainty that will persist for the rest of the year. Bartolini encourages a focus on innovation and targeting market segments that are poised to construct the future economy. Software is expected to be an essential element of our society moving forward. Bartolini predicts that new industries will develop within this sector due to our collective, wide-ranging needs. Due to this heightened reliance on technology, cybersecurity and healthcare will also be a prominent sector. Ultimately, Bartolini recommends investors be cognizant of broad, generational, emerging themes.
Another important factor, Bartolini proposes, is total returns. The combination of low-interest rates and momentous monetary policy is complicating many individuals’ search for income. Furthermore, the global 60/40 portfolio is yielding at its all time lowest. Treasury yields are extremely low, but their duration is high. State Street has been speaking with investors about using mortgage-backed securities and short-termed corporates to achieve a better balance of yield and duration. It is in every investor’s best interest not to “fight the Fed.” The federal bank has indicated that it will prevent spread from passing a certain point, and investors should capitalize on this market stimulus.
Lastly, investors should look for relative value opportunities in the second half of 2020. The pandemic has exacerbated American’s behavioral tendency toward home bias, causing investors to dramatically under-appreciate foreign equities. Outflows from non-US focused ETFs are at their worst point for any past three month period; they have lost $19B. Meanwhile, $57B has been deposited into US targeted strategies creating a differential of $80B. Consequently, this rush out of foreign equities and rush toward US equities has created a value opportunity in the foreign markets. Investors should contemplate using multiple metrics for measuring value so they do not lose out on undervalued opportunities for growth.
Matthew Bartolini serves as the Managing Director and Head of SPDR Americas Research at State Street. He is responsible for the product research and analysis of SPDR ETFs and SSGA Funds. Bartolini’s team develops proprietary research, marketing strategies, and campaigns across the firm’s ETF and mutual fund product suite. Before starting at State Street 14 years ago, Bartolini was a fund accountant for Amundi Pioneer.
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