Selectivity is key when overall valuations are high and return opportunities in industries and stocks are benefiting from demographic changes and technological advances.
In the post-2008 quantitative easing (QE) world, unconventional monetary policy has steered liquidity flows into bond-like equities and minimum-volatility strategies. The result has been crowded investor positioning. Earnings multiples have expanded, while earnings expectations have been continually revised down, resulting in some historically elevated valuation multiples. Cyclical stocks have disappointed due to a lack of capital expenditure, a shallow US economic trajectory, and significant uncertainty in the outlooks for the EU, China, and Japan. A long bull market in bonds has ensued with ever-lower yields and negative equity flows and with an increasing proportion of equities allocated to passive and beta strategies.
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