Wells Fargo Asset Management’s 2017 midyear report, released today, comes on the heels of the Wells Fargo Investment Institute midyear outlook released in May. Both reports highlight continued uncertainty, but also continued growth opportunities for agile investors willing to take risks.
While Wells Fargo Asset Management has published a midyear outlook for many years, this year’s report — “2017 Midyear Investment Insights: Revise and Pivot” — takes new steps to combine the insights and perspectives of the firm’s seasoned capital market strategists with the views of its fixed income, U.S. equity, international equity, alternatives, and quantitative portfolio managers — providing a powerful report that helps investors consider investing trends and implications on their portfolios.
The Wells Fargo Asset Management report highlights two key considerations for investors to navigate the rest of 2017: the way they look at risk and the need to seek emerging investment opportunities.
“We encourage investors to embrace changes and pivot toward them,” said Brian Jacobsen, chief portfolio strategist for Wells Fargo Asset Management, and one of the report’s authors.
The report follows Wells Fargo Investment Institute’s May 31 report, “2017 Midyear Outlook: Seize the Opportunities.” Both midyear reviews encourage investors to resist complacency and rebalance their portfolios to avoid overconcentrating assets.
Adapting to risk
While global economic growth appears to be diversifying across countries and sectors, political uncertainty remains high. Janet Rilling and other senior portfolio managers at Wells Fargo Asset Management are adapting to the risks inherent in such a political climate.
“Risk is not a static concept,” Rilling said. “Risk shifts, morphs, and presents itself in different ways over time. At certain moments, such as the financial crisis in 2008, an investor must quickly abandon notions of where risk has presented itself in the system historically, and hunt out new sources of risk.”
Jacobsen said that looking at risk differently can uncover opportunities, even in market segments that might initially seem unappealing.
“New opportunities are created as a result of economic and technological changes,” he said, “but also because of the market’s adjustment to evolving political realities. Pivoting toward emerging investment opportunities can add value when value might look scarce and fleeting.”
Jacobsen noted that it’s more difficult to identify opportunities today — in an environment with tight credit spreads and high stock valuations — than when many equities were undervalued and interest rates remained near zero.
That’s why both midyear reports call for more active investing, where specific securities are thoughtfully added to portfolios.
In the Wells Fargo Investment Institute report, Paul Christopher, head global market strategist, said that changes in the drivers of the global economy have received much less attention than the well-documented rise in global populism and political change.
“We believe that, following an era of quantitative monetary stimulus, we will enter a period where security selection will be paramount to the performance of investment portfolios,” Christopher said.
Both reports identify specific investment opportunities. Wells Fargo Investment Institute recommends reducing certain riskier asset classes, broadening geographic exposure, increasing nontraditional sources of return — choosing real estate investment trusts and being agile with asset allocation shifts, for example — and reconsidering the active and passive mix in investment portfolios.
Meanwhile, Wells Fargo Asset Management is eyeing higher yielding intermediate-term investments in the bond market, and, in stocks, selective exposure to domestic equities and international stocks. The depreciation of existing fixed assets may mean that businesses will enter an upgrade cycle that favors information technology, software-focused health care companies, industrial firms, and financial technology companies. International stocks may benefit from improving economics and good valuations.
“One truism of investing is that uncertainties are always with us,” said Darrell Cronk, president of Wells Fargo Investment Institute, “but successful investing is built on the premise that uncertainty can create opportunity.”
Read the full Wells Fargo Asset Management report, “2017 Midyear Investment Insights: Revise and Pivot,” and the full Wells Fargo Investment Institute report, “2017 Midyear Outlook: Seize the Opportunities.”
Wells Fargo Investment Institute is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor. 304191 06-17
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