Investment Outlook

Q1 | 2019

Key Takeaways

  • Concerns about trade, rising rates and growth that drove volatility in 2018 are still in play, so we expect the turbulence to continue in the new year.
  • We attribute the flatter yield curve to Federal Reserve (Fed) tightening, not a looming recession. We expect the yield curve to resume a more-normal slope once the Fed achieves normalization.
  • An environment of moderating economic and earnings growth should favor secular growth companies, while periodic volatility will create opportunities to buy high-quality companies that are victims of indiscriminate selling.
  • Stocks with less exposure to U.S.-China trade tensions, including smaller firms that derive most of their revenues from local sources, may offer attractive opportunities.
  • Despite a challenging year in 2018, emerging markets (EM) fundamentals remain strong, and we believe EM continue to warrant an allocation in well-diversified portfolios.
  • Absent further escalation in trade or geopolitical conflicts, we expect healthy economic growth to push 10-year Treasury yields higher, eventually settling in a range of 2.75% to 3.25%.
  • In the wake of recent volatility, we believe EM sovereign and corporate debt are fairly valued overall, particularly compared with U.S. credit. However, heightened country-specific risks underscore the importance of remaining selective.
  • In this environment, investors should consider uncorrelated sources of return through alternative fixed-income sectors, such as asset-backed securities (ABS) and collateralized loan obligations (CLOs).

 

Victor Zhang

Victor Zhang

Chief Investment Officer

American Century Investments

  • Introduction
  • Global Macroeconomic Outlook
  • U.S. Equity
  • Developed Non-U.S. Equity
  • EM Equity
  • Global Fixed Income
  • Alternatives
  • Multi-Asset Strategies

Global markets are jittery heading into the new year. In the second half of 2018, we saw an increase in volatility as investors fretted about economic and profit growth, rising rates and trade. These factors are still in play, so we expect the turbulence to continue in 2019.

Economic growth in key segments of the global economy is beginning to moderate. Citing the impact of tariffs, analysts have lowered their 2019 forecasts by projecting flat or slightly slower global growth. They also expect the pace of economic growth to ease in the U.S., Europe and other developed markets.

With the impact of federal tax cuts fading, U.S. earnings growth is likely to fall to single digits during the first half of 2019 after topping 25% in the third quarter. We expect the deceleration to be less pronounced outside the U.S., though the unresolved Brexit and other trade concerns are dampening corporate sentiment. The uncertainty is weighing on management teams, which, in turn is delaying capital spending plans. Meanwhile, analysts predict that EM will improve in 2019.

Even news of an apparent deal to delay sharply higher tariffs on Chinese goods triggered a wild week of global trading. On top of this, Brexit negotiations have gotten messy with the U.K.’s prime minister struggling to find support for a deal with the European Union (EU). If nothing changes between now and then, March 2019 could be an eventful month with the 90-day U.S./China trade truce set to expire March 1 and the U.K.’s exit from the EU slated for March 29.

After following a mostly predictable path toward normalizing short-term interest rates over the last three years, the Fed’s future moves are less clear. We’re getting closer to a “neutral” rate that neither stimulates nor stifles economic growth. But questions remain about how central bankers will define “neutral” and how fast they want to get there.

Once the Fed achieves rate normalization, we expect the Treasury yield curve to resume its normal upward slope. The curve remained relatively flat in 2018, meaning there was little difference between yields on short-maturity Treasuries and longer-maturity Treasuries. We attribute this primarily to Fed tightening, not, as some fear, a looming recession.

Our investment teams can help you pursue your financial objectives by making strategic changes to your portfolio. For example:

  • As the economic cycle, credit cycle and bull market mature, superior security selection may be rewarded because the difference between the top- and bottom-performers tends to grow.
  • Volatility may present opportunities to buy high-quality equity and fixed-income securities that are victims of irrational selling.
  • Despite a tough year, EM fundamentals remain strong and any pullback in U.S. dollar strength would be a positive.

As I mentioned initially, we expect the bumpy ride of the second half of 2018 to continue. These rough patches are jarring after a long period of relative calm, but they’re normal and come with the territory if you’re exposed to capital markets. Rather than react to short-term events, we recommend that you review your long-term plan to ensure it’s aligned with your goals and risk tolerance.

Thank you for investing with us.

First Topic

Global Economy: Growth moderates in most markets

U.S. Economy Remains Resilient

Although U.S. economic growth appears to be moderating, it remains strong relative to other markets. We expect solid corporate earnings and the ongoing benefits of fiscal stimulus to keep the economy growing at a healthy pace into 2019. However, lingering trade tensions remain a risk.

Uncertainties Pressure European Growth

Uncertainties related to trade and tariffs with the U.S. and a Brexit deal with the U.K. are weighing on economic growth in Europe. Positive developments on either front likely would boost business confidence and the region’s growth outlook. Meanwhile, U.K. growth is improving modestly on a tight labor market.

Emerging Markets Slowing

Overall, emerging market growth is decelerating due to slowing global growth, escalating U.S.-China trade tensions, and falling oil prices. Looking ahead, fiscal stimulus in China could boost the growth outlook for many emerging markets, but political risks remain elevated as new leaders in key markets take power.

Second Topic

Inflation: Global inflation stabilizes

U.S. Inflation Stays Steady

We expect U.S. core inflation to remain near the Fed’s 2% target. Meanwhile, headline inflation remains slightly higher, but we expect it to continue to moderate and eventually converge with core inflation. Recent steep declines in oil prices should drive down the headline rate. So far, tariffs have had a negligible effect on U.S. inflation.

Prices Ease in Europe

Although headline inflation in the eurozone recently hit a nearly six-year high of 2.2%, we expect it to moderate. Core inflation remains muted and well below the central bank’s 2% target. In the U.K., headline and core inflation have eased and should remain close to central bank targets.

Japan Eyes Slow Uptick in Headline Rate

We expect headline inflation in Japan to remain contained until late 2019, when a sales tax increase should push the annual rate toward 2%. Meanwhile, core inflation should settle near 1% amid rising wage growth and a weak yen.

Third Topic

Monetary Policy: Policy divergence remains intact

Fed Continues to Normalize

The Fed remains on a tightening course, unlike its peers in Europe and Japan. However, Fed policy is likely to become more challenging and uncertain in 2019, as the short-term lending rate approaches its “neutral” setting. Traditionally, this rate, which neither spurs nor slows growth, has been between 2.75% and 3.00%.

Rates Unchanged in Europe, Japan

After ending its bond-buying program in December, the European Central Bank (ECB) is unlikely to hike rates until the second half of 2019. Japan’s central bank is maintaining its quantitative easing program with a mild and gradually tapering of bond purchases.

U.K. Tightening on Hold

The Bank of England is likely to hold its benchmark lending rate steady at 0.75% until May 2019. If Brexit unfolds in an orderly fashion, and economic growth continues to improve, we expect additional rate hikes to follow.

Fourth Topic

Interest Rates: Rates edging higher

Treasury Yields on the Rise

After spiking in October, U.S. Treasury yields have eased amid sharp stock market volatility. Nevertheless, we believe the upward trend in yields will resume, albeit gradually, amid solid growth and stable inflation. We expect the 10-year Treasury yield to trade in a range of approximately 2.75% to 3.25% into early 2019.

Rates Headed Higher in Europe

We expect eurozone rates to gradually move higher as the ECB slowly removes its stimulus programs. Rates should remain slightly higher in the U.K., where policy normalization is already underway. Rates in Japan remain unusually low amid ongoing and aggressive central bank stimulus.

Select EM Rates Remain Attractive

Solid growth, Fed tightening, and robust U.S. Treasury issuance are keeping U.S. rates elevated versus rates in other developed markets. We continue to focus on markets where rates are more likely to fall or remain stable, including select emerging markets, to help diversify duration risk in the U.S. and Europe.

Earnings Expectations May Be Too High, but Opportunities Remain

We remain optimistic about the U.S. stock market in 2019 but are concerned that earnings expectations for some companies may be too high given the likelihood of moderating global growth and rising costs. The worry now is that we may be near the end of the cycle. Low interest rates, low inflation and rising corporate profitability were a recipe for high returns on the equity market in the aftermath of the 2008 financial crisis. However, we think stocks are now riskier given the potential for reversion in this Goldilocks scenario.

We believe this environment creates opportunities. First, if economic and earnings growth moderates as expected, conditions will favor higher-quality companies whose earnings are driven by innovation or dynamics independent of the economic cycle. Second, the market is experiencing more normal levels of volatility, creating opportunities to buy or add to positions in high-quality companies that are merely victims of indiscriminate selling.

  • Be prepared for a more volatile environment with moderating economic and earnings growth. We believe these conditions favor companies that can deliver earnings growth regardless of the economic cycle. Watch for opportunities to buy high-quality companies that are victims of irrational selling.

Jury Still Out on Style Rotation

Value investors have fared better recently in relative terms after a 10-year bear market compared to growth. We’ve experienced brief stretches of value outperformance during this extended cycle, so it’s too early to say if this is another head fake or whether the rotation will be sustained. The most recent shift began in non-U.S. developed markets and EM in September, expanded to the U.S. and continued late into 2018. According to our research, extreme periods of growth outperformance have occurred less than 5% of the time over the last 40 years. We have typically experienced significant reversals after stretches of extreme performance such as this.

The valuation difference between growth and value stocks has been wide throughout the extended growth bull market. Even though we’ve seen the spread narrow somewhat with stronger value performance during the last few months, it remains high.

Beyond compelling valuations, rising borrowing costs could drive a sustained rotation to companies with stronger balance sheets and more predictable earnings streams. When rates were at historic lows, lower-quality companies enjoyed ready access to inexpensive loans through the credit market. As rates normalize, we expect higher borrowing costs to have the biggest impact on companies that are more dependent on debt. Combined with a potential slowdown in economic growth, these higher costs could trigger a hard landing for some corners of the growth market. Ultimately, this could lead to a flight to higher-quality companies.

  • Evaluate your portfolio’s style exposures after the long, growth-oriented bull market. Consider rebalancing toward neutral allocations if your portfolio has developed an unintended growth emphasis.

Technology Trends Remain Positive, but Trade Disruption Is a Threat

We continue to find strong growth opportunities in information technology driven by enduring trends toward automation, cloud computing, and digital advertising, among others. Our bottom-up fundamental analysis indicates technology spending is increasing, benefiting semiconductor and communications equipment companies. Internet stocks continue to generate high growth, and online security is another growth segment. Our growth portfolios maintain material exposure to large-cap technology stocks where we continue to see multi-year advances in technology adoption enhanced by the scale and financial strength of these companies.

Trade tensions remain a threat to the tech sector. For example, the semiconductor industry is highly dependent on global trade to operate effectively. Innovation in smart phone and data center hardware often starts in the U.S., components are manufactured in Taiwan and then assembled in China. A threat to global free trade puts the entire supply chain at risk.

  • Consider broad technology exposure across multiple themes for exposure in five key technological trends:
    • digital payments
    • cloud computing
    • 5G networks
    • artificial intelligence
    • self-driving vehicles

Technological, Demographic and Market Trends Point to Opportunities in Health Care Stocks

We believe we are entering a golden age of innovation resulting in new treatments for cancer and other gene-based diseases. Powerful diagnostic and data analytics provide more efficient research, diagnosis and potentially better outcomes. Advanced medical devices are creating better treatment options for patients as well. As a result, we think health care companies are at the forefront of several long-running trends that can promote strong, sustainable growth for years to come.

Emerging new treatments intersect with demand due to changing demographic trends as populations age and life expectancies increase. In the U.S., for example, not only is the number of people ages 65 and older growing, but annual health care spending for this age group is three times that of those ages 19 to 641. As a result, this long-term demographic shift suggests sustained demand for innovative health care products and services. This global phenomenon represents enduring forces that create strong demand for new treatments and technologies.

  • Health care is a rare sector in the early stages of growth, innovation and reasonable valuations.

1 Lassman and Hartman, et al., U.S. Health Spending Trends by Age and Gender: Selected Years 2002-10, Health Affairs, May 2014.

Vinod Chandrashekaran
Vinod Chandrashekaran

Expectations for Non-U.S. Earnings Remain Positive

While uncertainty over trade policies and Brexit negotiations is weighing on corporate sentiment, the outlook for 2019 non-U.S. corporate earnings growth remains positive.

Our research indicates the recent underperformance of non-U.S. stocks is partially due to the divergence in growth rates, with faster growth in the U.S. during 2018. As we enter 2019, the market is adjusting to decelerating growth in most geographies, but the deceleration is most pronounced in the U.S., where the positive impacts of tax reform have largely been realized. Heading into 2019, this creates an opportunity for investing in non-U.S. developed markets as the divergence in earnings growth with the U.S. moderates.

We believe an active approach will be important. As monetary policy normalizes and interest rates rise, dispersion of stock price returns tends to increase. In addition, in an environment where inflationary pressures are increasing, growth is becoming less synchronized. Therefore, we think stock price performance will be differentiated based on company fundamentals. Correlation of stock price returns to earnings has normalized and intra-stock correlation of returns has declined.

  • Consider companies that may be less exposed to trade rhetoric and imposed or threatened tariffs. Stocks outside the U.S. may have the potential for stronger earnings growth as U.S. earnings and the recovery cycle mature.

Europe and Japan Land in Trade Crosshairs; Brexit Uncertainties Weigh on U.K.

As significant exporters to China, Europe and Japan are likely to be hurt by a general slowdown in global trade, but alternative suppliers may benefit. For example, in the lead-up to the G20 summit in December, China sought to replace its U.S. soybean imports with crops from Brazil and U.S.-made aircraft with Airbus planes from Europe.

Until we have some resolution of the current conflict, we’ve been evaluating companies’ ability to pass on higher costs through price increases to identify companies less likely to be adversely affected by a prolonged trade war. This is especially relevant for industrial stocks where we’ve divested those we initially saw as challenged by higher raw materials costs.

Globally, small-cap stocks may represent an area of relative shelter. Smaller companies tend to be more domestically focused with simpler supply chains generally less exposed to trade tensions and other global macroeconomic pressures.

As 2018 wound down, details around the U.K.’s exit from the European Union (EU) were undecided. The various parties in the U.K. and the EU itself were unable to agree on the question about a customs union or a method of avoiding a hard border between Northern Ireland and the Republic of Ireland. The uncertainty around the final arrangements for a deal, or if a deal can be reached at all, continue to cloud the picture for U.K. companies.

  • Reevaluate your portfolio’s regional and market capitalization exposures. Stocks with less exposure to U.S.-China trade tensions may offer attractive opportunities. Smaller-cap firms tend to derive more revenues from local sources and therefore may weather a prolonged trade war better than larger-cap companies.

Consumer Discretionary Stocks Benefit from EM Demand

We continue to see improving trends in demand for consumer discretionary goods in EM countries, driven by the long-term trend of an emerging middle class and their aspirational spending. We’re finding opportunities in companies based in developed markets and EM, including luxury retailers selling in China, consumer electronics companies with sales in Brazil, and global consumer discretionary companies distributing higher-quality brands.

  • Consider consumer companies positioned to take advantage of long-term trends such as EM consumer demand for higher-quality goods and services.

EM Fundamentals Remain Strong

Despite a bruising year, we believe EM fundamentals are compelling. Inflation is contained, reforms are in place and valuations remain attractive relative to developed markets. Earnings are growing at a double-digit pace, reflecting expanding profit margins across a wide range of sectors. Profit growth is supported by above-trend global expansion and local economies that are growing faster than developed markets. In addition, improvements in current account deficits and other macro imbalances reduce the need for large infusions of external financing. This is significant given tightening global financial conditions.

Investors must be selective, however, because not all emerging markets are alike. There is no single emerging market–there are 24 different countries at different stages of the economic cycle. Each presents unique opportunities and risks.

  • We believe EM continue to warrant an allocation in a well-diversified portfolio. Economic growth differentials between EM and developed markets remain large and are accelerating. Earnings growth is robust, and valuations are attractive relative to developed markets.

Government Policy Is Supporting Domestic Demand in China

The Chinese economy has slowed amid uncertainty, in part due to weakening consumer activity as concerns about a prolonged trade war weigh on consumer sentiment. Auto sales in China have dropped significantly, driving a corresponding slowdown in components makers and auto technology suppliers.

In response, Chinese government policy continues to support domestic demand. We are finding opportunities in areas such as cement companies that should benefit directly from increased infrastructure spending resulting from bank lending and fiscal stimulus.

Trade tensions have hurt export-oriented economies in emerging markets. As a result, we favor companies that derive the bulk of their revenues domestically or from within EM, and whose exports to the U.S. account for less than 10% of total revenues. We expect the fundamental impact of trade issues on such companies to be limited.

  • The uncertainty around global trade is likely to continue. Domestically focused businesses in China and EM companies with less exposure to the U.S. may be more attractive while trade tensions are high.

Strong U.S. Dollar Creates Headwinds for EM

A stronger U.S. dollar generally acts as a headwind for EM economies and companies because the correspondingly weaker local currency makes goods more expensive in external markets. Countries with unfavorable current account balances and those making payments on dollar-denominated debt also suffer in a strengthening-dollar environment.

We favor companies that derive more of their revenues domestically or from regional trade partners, thereby mitigating the fundamental impact of the strong dollar. We are also finding opportunities in countries with more favorable current account balances with the U.S. (e.g., China, Russia, Thailand, and South Korea).

  • Any moderation in U.S. dollar strength would likely benefit EM. Dovish statements from several officials at the Fed amid increased U.S. equity market volatility and ongoing trade uncertainty may help peak the long-running dollar rally.







Sector Outlook


 

blue-arrow-icon

U.S. Treasuries


We expect Treasury yields to gradually rise but remain rangebound over the next few months. Absent significant trade or geopolitical conflicts, we expect stable core inflation and an increase in Treasury supply to keep the 10-year Treasury yield in a range of 2.75% to 3.25%. Given this outlook, we continue to underweight Treasuries in favor of more attractive opportunities in select spread sectors.

grey-square-icon

U.S. TIPS


We believe headline inflation will moderate and converge with core inflation, which we expect to remain near 2%. Longer-term inflation expectations remain close to historical averages.

selective

U.S. Securitized


We expect certain securitized bonds will continue to offer better yield and total return opportunities than Treasuries. Within the sector, we favor fixed- and floating-rate mortgage credit, including non-agency commercial mortgage-backed securities (CMBS) and non-agency collateralized mortgage obligations (CMOs). We believe these securities offer better relative value than fixed-rate agency mortgages.

underweight

U.S. Investment-Grade Credit


We began reducing exposure to corporate bonds in early 2018, and recent widening of credit spreads confirms our commitment to this strategy. Initially, the late-stage nature of the credit cycle, combined with valuation concerns, prompted our cautious approach toward the sector. Corporate fundamentals generally remain upbeat, but we believe recent upticks in market volatility and risk warrant an underweight position in the corporate sector. Although volatile markets often create good buying opportunities, we remain extremely selective. Our approach focuses on finding companies with good balance sheets and cash flows selling at attractive prices.

selective

U.S. High-Yield Credit


We are taking a similar selective approach in the high-yield credit sector. Falling oil prices and heightened risk factors (trade war worries, Brexit uncertainty, Italy’s budget woes) have pushed spreads among lower-quality corporate bonds sharply wider. We continue to underweight high-yield corporates, particularly those with more-leveraged balance sheets and large refinancing needs. Meanwhile, we continue to increase exposure to select bank loans. With U.S. rates likely heading higher, we favor the floating-rate nature of bank loans. Also, bank loans are somewhat shielded from market risks originating outside the U.S.

selective

U.S. Municipal


Against a backdrop of generally improving economic data, state and local finances across the country remain fairly healthy. We expect new gross supply, on a year-over-year basis, to remain fairly stable versus 2018, as well as demand for tax-exempt munis, particularly in high-tax states, to remain strong. We continue to favor securities in the higher education, transportation and hospital sectors, as well as bonds that finance charter schools and continuing care retirement communities (CCRC). Additionally, given our outlook for modest economic growth, slightly higher interest rates and generally healthy credit fundamentals, we are maintaining our general bias toward lower-quality securities (investment-grade securities with BBB credit ratings) and higher-yielding sectors (charter schools, CCRC and special tax).

underweight

European Sovereign


In the wake of moderating economic growth rates and ongoing central bank stimulus, European government bond yields remain unusually low. We expect a gradual normalization of yields, particularly after the European Central Bank ended its bond-buying program in December. Rates remain modestly higher in the U.K., where the Bank of England has paused its rate-hike campaign in response to Brexit uncertainty. However, U.K. growth remains solid, and rates should head higher. In this environment, we are underweighting European sovereigns, preferring markets where we believe rates are likely to fall or remain stable. These include Canada and select local emerging markets (EM).

selective

European Credit


We continue to find the best European credit valuations within the banking and insurance industries. Credit spreads in these industries remain attractive due to regulatory enforced improvements in capital ratios and risk management.

selective and over

EM Debt


For most of 2018, EM sovereign and corporate spreads widened amid heightened volatility, a stronger U.S. dollar, and country-specific events. In the wake of this widening, we believe valuations appear fair. High-yield segments are particularly cheap relative to historical averages and versus U.S. credit. However, we remain selective due to heightened idiosyncratic country risks. We generally favor local-currency bonds over U.S. dollar-denominated EM debt. Local currency holdings are less sensitive to rising U.S. Treasury yields. We also remain mindful of the effects of rising oil prices and global trade policy on EM countries.

ABS and CLOs May Be Attractive Alternatives as Rates and Volatility Rise

The rising rate environment has been a headwind for bond investors. With interest rates on the rise and heightened volatility apparently here to stay, overlooked segments of the fixed-income market may be attractive alternatives to traditional bond investments. 

Not all fixed-income sectors respond the same way when rates move higher. Mainstream government and corporate bonds tend to underperform when rates rise, while other fixed-income securities have fared better. Examples include asset-backed securities (ABS) and collateralized loan obligations (CLOs), instruments with prices that are less-sensitive to rising rates and yields that adjust along with changes in interest rates. We believe these characteristics may help generate outperformance as interest rates head upward.

ABS represent pools of underlying assets, such as auto loans, student loans, credit card debt and aircraft leases. These assets generally are less-sensitive to macroeconomic events than equities and corporate credit. CLOs represent pools of lower-rated corporate loans. Their coupon payments are tied to the three-month LIBOR2, a key short-term interest rate benchmark. CLOs remain in robust demand, as the Fed’s rate-hike program has pushed other short-term yields, such as LIBOR, higher.

  • Looking ahead, we expect an environment of higher interest rates and volatility in 2019. Therefore, we believe investors should maintain a balanced, diversified portfolio with uncorrelated sources of return, including often-overlooked fixed-income sectors that tend to respond favorably to rising rates.
Cleo Chang
Cleo Chang

Bulls and Bears at Odds over Earnings

Current stock volatility reflects a disagreement over the future of corporate earnings. Bears argue: (1) the rate of earnings growth is decelerating; (2) U.S. economic expansion is long in the tooth and bellwethers housing, autos and semiconductors have rolled over; and (3) tariffs and trade disruptions are likely to weaken global growth even more. Bulls, however, contend that soaring corporate profits are driving record share buybacks and dividend payouts, and capital expenditures are growing at the fastest pace in a quarter-century. This dispute won’t likely be resolved anytime soon, so we expect markets to remain volatile for the foreseeable future.

We recommend that investors far from their savings goals or target retirement dates view market declines as opportunities to add equities to their portfolios. Investors nearing their retirement dates or other goals should be much more conservatively positioned because they likely won’t have enough time to recover from large losses.

Asset Class

U.S. Equity vs U.S. Fixed Income & Cash


We believe that now is not the time to deviate from your strategic allocations—rising yields and stock market volatility strengthen the argument for fixed-income assets. However, strong corporate profit growth and still-attractive stock dividend yields mean we remain neutral across the three major asset classes.

Equity Region

U.S. vs Non-U.S. Developed Markets


After a long period favoring the U.S. thanks to stronger relative growth and corporate fundamentals, we have returned to our strategic target weights. This reflects more attractive non-U.S. earnings yields at a time when our fundamental team’s view of the U.S. market has deteriorated.

U.S. vs Emerging Markets


We continue to argue that EM equities offer compelling diversification characteristics over time for all but the most conservative strategic asset allocation portfolios, but we don’t yet believe it’s time to move to a tactical overweight to the asset class.

U.S. Equity Size & Style

Large Cap vs Small Cap


Many factors in our model point to large caps over small, but relative valuation strongly supports small caps. We see arguments for both sides—large caps tend to be less volatile and have more ways to maintain profitability while small caps tend to be more domestically focused and less affected by slower growth globally.

Growth vs Value


We’re reluctant to call the turn in the growth/value cycle. It’s true that value has done better because of the correction in the growth-oriented tech sector. But growth stocks tend to perform best when economic growth is slowing, while value tends to benefit from cyclical upswings in growth. As a result, it’s hard to advocate a value overweight.

Fixed Income

U.S. vs Non-U.S.


We see the U.S. dollar approaching peak valuations and prefer commodity-related currencies in developing market and EM countries. By sector, there are select opportunities in subordinated European bank and insurance bonds. EM debt valuations have improved, but high degrees of risk mean we remain neutral.

Alternatives

REITs vs Core Assets


Higher interest rates and a slowdown in the U.S. housing market are negatives for domestic REITs. But we believe relative yields are attractive enough and diversification benefits compelling enough to justify maintaining our strategic allocation to global REITs across all our portfolios.

Investment Outlook Brochure

Q1 | 2019

Download PDF

The opinions expressed are those of American Century Investments (or the portfolio manager) and are no guarantee of the future performance of any American Century Investments' portfolio. This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

Generally, as interest rates rise, bond prices fall. The opposite is true when interest rates decline.

International investing involves special risks, such as political instability and currency fluctuations.

Historically, small- and/or mid-cap stocks have been more volatile than the stock of larger, more-established companies. Smaller companies may have limited resources, product lines and markets, and their securities may trade less frequently and in more limited volumes than the securities of larger companies.

References to specific securities are for illustrative purposes only, and are not intended as recommendations to purchase or sell securities. Opinions and estimates offered constitute our judgment and, along with other portfolio data, are subject to change without notice.

American Century Investments uses a multifactor stock-ranking model incorporating a variety of stock attributes, which fall into four categories or factor families: valuation, growth, quality, and sentiment.

Diversification does not assure a profit nor does it protect against loss of principal.

Alternative mutual funds that hold a variety of non-traditional investments also often employ more complex trading strategies than traditional mutual funds. Each of these different alternative asset classes and investment strategies have unique risks making them more suitable for investors with an above average tolerance for risk.

As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.