Exchange traded products: investment themes for 2018

Karim Chedid, investment strategist for exchange traded funds (ETFs) and index investments at BlackRock, tells IGTV’s Victoria Scholar about three investment themes for 2018.

The value of investments can fall as well as rise, and you may get back less than you invested. Past performance is no guarantee of future results

The first of the three key investing themes for 2018, as identified by BlackRock's Karim Chedid, is that the global economy has more room to run, with the likely peak in global expansion years rather than quarters away. Secondly, inflation will finally come through and, as the US Federal Reserve (Fed) continues to tighten, monetary policy and rates will diverge from the rest of the world. Lastly, while investors will still be rewarded for taking on risk in 2018, the degree of compensation will fall. 

Chedid’s top investment idea for 2018 is emerging market equities.

2017: a tough act to follow

A synchronized upswing in global growth and risk-on sentiment spurred the major equity indices in the US to what felt like a never-ending stream of record highs. No wonder demand for equity exchange traded products (ETPs) sky rocketed at the same time. 

According to BlackRock, equity ETPs gained $365 billion until the end of November 2017, a jump of more than $100 billion versus the same time period in the previous year. BlackRock also points out that the flows into emerging market equities were consistently strong, following several years of weakness.

There’s still caution in some quarters

Despite the bullish sentiment, markets expressed a level of caution. Alongside equities, safe-haven assets such as gold also saw increased inflows, with the correlation between the precious metal and stocks rising to the highest level since 2011, according to BlackRock.

The analyst team says rising geopolitical tensions gave reason for extra hedging against a reversal. If BlackRock is wrong, perhaps it was the ten-year anniversary of the global financial crisis which served as a harsh warning against complacency, as painful memories of 2007’s market paralysis came flooding back to investors.

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