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 |
| 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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