Are Your Clients Properly Allocated for a Changing Rate Environment?
Market volatility over the past few years may have led many of your clients to seek principal preservation and safety in the bond market. A variety of factors has kept interest rates low and if any of them change, the potential for increased volatility and risk exists:
- Accommodative monetary policy expectations for some time to come
- A near-zero federal funds rate for more than four years
- A strong or strengthening dollar
With the ongoing headwinds caused by widespread economic and market uncertainty, we believe perceived “good news” may at some point result in an upward move in interest rates, which can negatively impact fixed income portfolios.
Several Factors That Could Impact Domestic Bond Markets
Potential “Good News” That Can Trigger
|Debt ceiling and sequestration (massive fedreal spending cuts) debates||Meaningful longer-term compromises are reached|
|Future quantitative easing efforts||'Economic thresholds' are met, Fed reduces balance sheet expansion|
|Ongoing overseas sovereign debt crisis||
Outright monetary policy and ECB measures ease solvency and credit concerns
|Sub-par global economic growth||Higher-than-expected growth among largest economies|
Now is the time to sit down with your clients to review their asset allocation and determine if rebalancing a portion of their portfolios to equities is appropriate. We believe there is opportunity in U.S. large cap growth equities, for a number of important reasons. Growth in any environment – as global growth slows, investors should seek out companies with a strong growth history.
- Companies like Intuit, Wal-Mart, Apple and Google all produced year- over- year positive increases in net income since 2003, including the recessionary period of 2008.1
- Attractive valuations – The P/E’s of large cap stocks (as represented by the Russell 1000 Growth Index) are currently 26% cheaper than their historical average over the last 20 years.
- Global growth exposure – While many large-cap companies are U.S.- based, their revenues and profits are increasingly globalized. These companies can better position investors for global market improvements.
Learn more about large cap growth investing and consider Dreyfus Research Growth Fund as a large cap growth solution.
Dreyfus Research Growth Fund
Class A DWOAX Class C DWOCX Class I DWOIX Class Z DREQX
- A high conviction approach looks to build a portfolio of active overweights to drive performance
- Investment decisions made by senior analysts closest to information
- Diversified portfolio looks to generate alpha across all sectors of the market
- A strict sell discipline with rigorous stop/loss triggers to eliminate underperforming stocks
Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. Download a prospectus, or summary prospectus, if available, that contains this and other information about the fund, and read it carefully before investing.
1 Levels of growth will vary and past performance is no guarantee of future results. The companies listed represented, in the aggregate, 13.94% of Dreyfus Research Growth Fund as of 6/30/12. Portfolio composition is subject to change at any time. The holdings listed should not be considered recommendations to buy or sell a security.
Equity funds are subject generally to market, market sector, market liquidity, issuer and investment style risks, among other factors, to varying degrees.
Bond funds are subject generally to interest rate, credit, liquidity and market risks, to varying degrees, all of which are more fully described in a fund’s prospectus. Generally, all other factors being equal, bond prices are inversely related to interest-rate changes, and rate increases can produce price declines.
Investing internationally involves special risks, including changes in currency exchange rates, political and economic instability, less market liquidity, lack of comprehensive company information, and differing auditing and legal standards. Emerging markets tend to be more volatile than the markets of more mature economies, and generally have less diverse and less mature economic structures and less stable political systems than those of developed countries.
The use of derivatives involves risks different from, or possibly greater than, the risks associated with investing directly in the underlying assets. A small investment in derivatives could have a potentially large impact on the fund’s performance.