US Equities: Flight to Quality amid Elevated Uncertainty
US equities could offer a degree of protection against current geopolitical uncertainty, notably given their lower dependency on Russian resources.
Strong earnings growth combined with challenged performance to start 2022 have led to improved valuations for the S&P 500, the bellwether US large cap equity index.
Investors who prefer a more domestic and cyclical mix could consider S&P MidCap 400 or Russell 2000 exposures.
Amid geopolitical uncertainty, investors may seek less impacted parts of the market, such as US equities. While global growth may deteriorate due to the implications of the Russian invasion of Ukraine, for now a recession is not priced in, especially in the US economy. Indeed, the US economy is not heavily dependent on Russian natural resources, including oil and gas. We believe that in the current environment US large cap exposures, such as the S&P 500, may be the optimal choice as they combine robust earnings and relative resilience to the crisis.
The S&P 500 index rebounded sharply after the initial shock of the COVID crisis thanks to immediate monetary support. However, the relative outperformance of US large caps, compared to other regions, was driven by a strong US economy and the company mix within the index. Indeed, the S&P 500 has a large weight in technology companies from various sectors. These tech giants look set to continue growing in the longer run, benefitting from structural mega trends. Their strong performance in the COVID era was often attributed to the long “duration” nature of companies within the large cap index.
However, amid uncertainty, the strong demand for products and services of companies within the S&P 500, coupled with a robust US economy, have been equally important. We believe that the S&P 500 may yet again offer a level of protection against this new geopolitical uncertainty, which, unfortunately, may persist longer than necessary.
Until recently, the biggest challenge facing investors looking to add to US large cap equities was elevated valuations. However, strong earnings from US large caps and poor performance so far in 2022 significantly improved the 12-month forward price to earnings multiple, which now sits at a relatively undemanding 18.6x, below the level of 20 February 2020 (as presented in Figure 1).
Although monetary policy tightening remains one of the challenges to navigate and a rate lift off in March of 25bps minimum is fully priced in, the path and the pace thereafter are more uncertain, particularly when it comes to quantitative tightening. US 10-year treasury yields remain anchored around 2% for now, providing support for the increasingly attractive relative valuations.
Figure 1: S&P 500 Performance and 12-Month Forward P/E
How to play the theme
Investor can access S&P 500 equities through the SPDR® S&P® 500 UCITS ETF. To learn more about the ETF, and to view its full performance history, please visit the fund page.
More domestic and cyclical alternatives for positioning with US equities
Investors could also consider adding US equity exposures beyond large caps. Both US mid and small caps offer distinct features not only due to their smaller size and more domestic profile but also given their more cyclical sector split relative to S&P 500 (see Figure 2). The S&P MidCap 400® Index, with a 12-month forward P/E of just 14.4x, could be a preferred strategy under a scenario in which the US Federal Reserve tightens monetary policy more aggressively. The less demanding valuation of the index would then serve as a cushion against expanding yields.
On the other hand, the Russell 2000® Index, or small cap index, represents a higher risk-reward exposure that is best suited to play the upside scenario of continuous cyclical recovery but with a milder yield expansion.
For Investors in Austria: The offering of SPDR ETFs by the Company has been notified to the Financial Markets Authority (FMA) in accordance with section 139 of the Austrian Investment Funds Act. Prospective investors may obtain the current sales Prospectus, the articles of incorporation, the KIID as well as the latest annual and semi-annual report free of charge from State Street Global Advisors Europe Limited, Branch in Germany, Brienner Strasse 59, D-80333 Munich. T: +49 (0)89-55878-400.F: +49 (0)89-55878-440.
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ETF's worden verhandeld zoals aandelen, zijn onderhevig aan beleggingsrisico, fluctueren in marktwaarde en kunnen worden verhandeld tegen prijzen boven of onder de netto-inventariswaarde van de ETF’s. Brokercommissies en kosten van de ETF zullen het rendement verminderen. De wijzigingen in wisselkoersen kunnen een nadelig effect hebben op de waarde, prijs of inkomsten van een belegging. Verder is er geen garantie dat een ETF zijn beleggingsdoelstellingen zal behalen.
DE SPDR-ETF'S VAN SSGA ZIJN MOGELIJK NIET BESCHIKBAAR OF GESCHIKT VOOR U. DE UITGEDRUKTE MENINGEN/INFORMATIE OP DEZE SITE VORMEN GEEN BELEGGINGSADVIES, FINANCIEEL, JURIDISCH, REGLEMENTAIR, BOEKHOUDKUNDIG OF BELASTINGADVIES. BIJ TWIJFEL DIENT MEN STEEDS ONAFHANKELIJK ADVIES IN TE WINNEN. DE INFORMATIE NOCH ENIGE OPINIE OP DEZE SITE VORMT EEN VERZOEK OF AANBOD VOOR DE AAN- OF VERKOOP VAN AANDELEN VAN DE FONDSEN OF ENIG ANDER FINANCIEEL INSTRUMENT.Standard & Poor’s®, S&P® en SPDR® zijn gedeponeerde handelsmerken van Standard & Poor's Financial Services LLC (S&P); Dow Jones is een gedeponeerd handelsmerk van Dow Jones Trademark Holdings LLC (Dow Jones); en deze handelsmerken zijn in licentie gegeven voor gebruik door S&P Dow Jones Indices LLC (SPDJI) en in sublicentie voor bepaalde doeleinden door State Street Corporation. De financiële producten van State Street Corporation worden niet gesponsord, bekrachtigd, verkocht of gepromoot door SPDJI, Dow Jones, S&P, hun respectieve filialen en externe licentiegevers, en geen van deze partijen doen enige verklaring over de raadzaamheid om te beleggen in dergelijke producten, noch aanvaarden zij enige aansprakelijkheid in verband hiermee, inclusief voor fouten, weglatingen of onderbrekingen van een index.
SPDR-ETF's mogen enkel worden aangeboden en verkocht in rechtsgebieden waar dat is toegelaten in overeenstemming met de geldende regels.
Informatie met betrekking tot Mexico
Deze informatie is geen marketing of aanbieding van effecten en is niet ook niet zo bedoeld, en mag bijgevolg niet als dusdanig worden opgevat. De fondsen waarnaar in dit document wordt verwezen, zijn niet en zullen niet worden geregistreerd onder de Mexicaanse wet op de effectenmarkten (Ley del Mercado de Valores) en mogen in Mexico niet aan het publiek worden aangeboden of verkocht. De documentatie met bekendmakingen in verband met een van de bovengenoemde fondsen mag niet openbaar worden verspreid in Mexico en aandelen van de fondsen mogen niet worden verhandeld in Mexico.
SSGA SPDR ETFs Europe I Plc en SSGA SPDR ETFs Europe II Plc zijn beleggingsmaatschappijen met variabel kapitaal opgericht als fondsen met afzonderlijke aansprakelijkheid tussen de compartimenten volgens de wetten van Ierland en erkend door de Central Bank of Ireland conform de Europese verordening van 2011 over instellingen voor collectieve belegging in effecten. U moet het prospectus en de essentiële beleggersinformatie (KIID) met betrekking tot specifieke SPDR-ETF's aanvragen en zorgvuldig lezen alvorens u belegt. Voor meer informatie en het prospectus/KIID met de kenmerken, kosten en risico's van SPDR-ETF's kunt u nu een prospectus of KIID downloaden, of kunt u deze documenten verkrijgen bij uw financieel adviseur of bij uw lokale SSGA-kantoor.
De in de VS gevestigde SPDR-ETF's die op deze site worden vermeld, zijn enkel toegelaten voor commercialisering in het relevante EER-rechtsgebied conform artikel 42 van de AIFMD (zoals omgezet in nationaal recht van die lidstaat); of kunnen anderszins rechtmatig worden aangeboden of verkocht (inclusief op basis van een verzoek van een professionele/gekwalificeerde belegger). Enkele in de VS gedomicilieerde SPDR-ETF's die op deze site worden vermeld, zijn alternatieve beleggingsinstellingen in de zin van de richtlijn van de Europese Unie inzake beheerders van alternatieve beleggingsinstellingen (Richtlijn 2011/61/EU) (“AIFMD”). SSGA Funds Management, Inc. en State Street Global Advisors Trust Company zijn de beheerders van alternatieve beleggingsinstellingen (“BAB's”) van deze fondsen.
Alvorens u belegt, moet u de beleggingsdoelstellingen, risico's, vergoedingen en kosten van de fondsen in overweging nemen. Een prospectus met deze en andere informatie kunt u downloaden of aanvragen bij uw financieel adviseur. Lees het zorgvuldig alvorens te beleggen.
SPDR® Dow Jones® Industrial Average ETF staat genoteerd en is geregistreerd voor verkoop in Nederland.