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The Global Investment Committee (GIC), which meets monthly to review the economic and political environment and asset allocation models for Morgan Stanley Wealth Management clients, also discusses favored long-term trends that it believes offer worthy investment opportunities. Listed below are the GIC’s favored themes and rationale for investing in them. To learn more about investment opportunities that track these themes, please contact us.

Diversify Beta, Concentrate Alpha

From 2009-2017, successful investors did not diversify across asset classes but concentrated holdings in a handful of sectors and asset classes. Additionally, passive strategies outperformed active. However, as policy normalization continues and late-cycle dynamics take hold, this trend is likely to reverse. READ MORE >

European Equities: Attractive Story; Still Underappreciated
The European economy, slower to recover from the Great Recession, is earlier in the cycle than other developed markets. Lower interest rates and higher-than-forecast growth may drive shareholder returns despite elevated geopolitical risk. READ MORE >

Late-Cycle Opportunities Remain in Energy and Financials
The global economic recovery has shifted from asynchronous yet steady, to reflationary. We continue to have a preference for more of the cyclical sectors over defensive sectors until either long-term rates peak or growth outlooks roll over, which we do not anticipate occurring in the near term. Energy and Financials are our preferred late-cycle plays. READ MORE >

SMID Caps May Outperform
Relaxing regulation, more loan growth, and domestic policy initiatives should lead to a better operating environment for small and mid caps. These firms provide concentrated exposure to the US economy relative to larger firms. READ MORE >

Japanese Equities: An Emerging Growth Story
Loose monetary policy and fiscal stimulus, combined with political and structural reform, may mean that Japanese equities, driven by “Abenomics” and attractively valued, present a rare opportunity after 20+ years of underperformance. READ MORE >

Emerging Market Equities Present New Opportunities
Emerging markets underperformed the broad market since 2010, but could enter a sustained bull market. Re-priced currencies that are less vulnerable to Fed hikes, and declining EM yields may all provide tailwinds. READ MORE >

Manage Risk of Rising Rates with Short-Duration Treasuries

The GIC believes interest rate normalization will most likely be a slow and measured affair, but will provide a meaningful headwind for investors using bonds for principal preservation. With the Fed roughly half way through the hiking cycle, Treasuries under 4 years of maturity are yielding as much as 2.6%, providing a compelling alternative to credit. READ MORE >

Neutralize Outsized Style and Factor Exposures

Companies with momentum and aggressive growth outperformed their peers over 2017. Both of these factors now appear poised for reversal. Consider neutralizing factor and style exposure by decreasing growth and momentum while increasing value and quality. READ MORE >

Manage Broad Global Volatility: Consider Global Macro and Managed Futures

Along with interest rate normalization, the GIC believes capital market volatility will soon normalize, potentially increasing by as much as 30% over the next three-to-five years across bonds, equities, currencies and commodities. Balanced growth investors should focus on adding to global macro and managed futures strategies to mitigate the pickup in broad market volatility. READ MORE >
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