2018 Asset Allocation Outlook

12.22.2017 - Viraj B. Patel, CFA, FRM, CAIA

A Tactical Tilt to Non-US Equities

2017 was a banner year for risk assets across the globe.

While the global economy should remain strong, we expect year-over-year earnings comparisons will get tougher, moderating our expectations for equity returns in 2018. However, we are overweight equities, favoring international developed markets over their US counterparts, and remain underweight fixed income.

Equities: Keeping the International Tilt

Across developed markets we see the most promising return opportunities in Europe and Japan. In these regions, the political landscape has stabilized, the economic growth cycle appears younger than the US, and valuations remain cheaper on a relative basis.

In emerging markets, we maintain our recommendation of a neutral weight. However, after a year of improvement in the economic and fundamental backdrop, we continue to look for opportunities to raise our outlook on the asset class.

Fixed income: Underweight in a Challenging Environment

As the Federal Reserve continues to normalize monetary policy, bonds appear to offer limited total return opportunities. Within fixed income, we still prefer US investment-grade credit to government bonds, and in an effort to guard against interest rate risk, we are maintaining our short-duration bias relative to the benchmark.

For investors in high tax brackets, the municipal bond market continues to offer tax-advantaged income, although selectivity remains key.

Liquid Alternatives: A Hedge Against Volatility

Low market volatility and interest rates have weighed on hedge fund performance in recent years, but rising rates in 2018 and beyond could present hedge funds with new opportunities. As we look for market volatility to pick up, alternatives could offer investors downside protection and further diversification in multi-asset-class portfolios.


This analysis is provided for illustration and discussion purposes only and does not guarantee future results. Please speak to your Fiduciary Trust contact if you have questions or would like more information. This communication is intended solely to provide general information. The information and opinions stated are as of December 1, 2017, and may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

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