As we enter a new era of higher rates, asset classes will have to stand on their merits instead of skating by on the artificially low rate regime that has been a staple of the macroeconomic environment for the last seven years.

As a result, we could be entering a (more rational) period where top-line revenue growth and profits will serve as fundamental drivers of asset class returns.

The table below is offered as a conversation starter as advisors start to build portfolios for 2016.   Investors with little conviction about the state of the U.S. economy should consider owning assets from both groups. 

If the Economy Is Better Than Expected

Asset Class

Reason

Large Cap Value

  Higher rates should help big banks

HY Bonds

  Default rates will be less than expected

Commodities/NRG

  Demand catches up with supply

Foreign Equities

  Interest rate differentials between US/ROW
  should buoy these stocks

   

If the Economy Is Worse Than Expected

Asset Class

Reason

Gold

  Lower rates would bolster the metal

Treasuries

  Lower rates directly benefits the asset

Convertible Bonds

  Higher volatility would make it a good stock substitute

 

 

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