2021 Market Outlook Update
- Higher rates have led to a reflationary regime shift, impacting asset allocation decisions for both stocks and bonds
- In this environment, investors could consider growth-sensitive bonds and rate sensitive stocks
Fueled by accommodative monetary policies and additional fiscal stimulus, higher inflation expectations and upbeat growth prospects continue to put upward pressure on interest rates. Going forward, a higher rate reflationary regime could upend what has worked in the standard 60/40 portfolio over the past decade (long duration bonds and growth stocks).
Michael Arone, CFA, Chief Investment Strategist, US SPDR Business and Matthew Bartolini, CFA, Head of SPDR Americas Research sit down to discuss what the latest market dynamics impacting the recovery mean for portfolios.
To help portfolios remain properly diversified and meet their return objectives in this new regime, investors could consider replacing traditional bonds and growth stocks with growth-sensitive bonds and rate-sensitive stocks in the portfolio’s core.
SPDR® ETFs for the Higher Rate and Reflation Regime
Growth-Sensitive Bonds:
- Senior Loans: SPDR® Blackstone Senior Loan ETF [SRLN]
- Preferreds: SPDR® Wells Fargo® Preferred Stock ETF [PSK]
- Emerging Market Debt: SPDR® Bloomberg Barclays Emerging Market Local Bond ETF [EBND]
- High Yield Municipal Bonds: SPDR® Nuveen Bloomberg Barclays High Yield Municipal Bond ETF [HYMB]
- Mortgages: SPDR® Portfolio Mortgage Backed Bond ETF [SPMB]
Prior to February 26, 2021, the SPDR Blackstone Senior Loan ETF was known as the SPDR Blackstone / GSO Senior Loan ETF.
Rate-Sensitive Equities:
- Value: SPDR® Portfolio S&P 500® Value ETF [SPYV]
- Dividend Growers: SPDR® S&P Dividend ETF [SDY]
- Mid Caps: SPDR® Portfolio S&P 400® Mid Cap ETF [SPMD]
- Small Caps: SPDR® Portfolio S&P 600® Small Cap ETF [SPSM]