Michael Christ, who heads Guggenheim Investment Advisory, acknowledges receiving calls from advisors who are watching funds flee emerging markets and asking what options are available to redeploy the assets. “We like equities for the intermediate term and long term,” he says. But over the next couple of quarters, the divergence in correlations indicates that markets around the world could remain bumpy.
“For the last five years, equities have moving with the herd. But the switch from high correlation regime to a low correlation regime favors active managers,” Christ says. And long-short strategies offer downside protection.
One asset class and strategy that Guggenheim Investment Advisory is de-emphasizing is credit-oriented strategies. “We’ve been exiting credit in favor of long-short and event-driven strategies,” Stucke says. “Credit has a great track record” in recent years, but much of its excess return can be attributed to tailwinds coming from the Federal Reserve’s QE policy.
“When QE ends, it will put a headwind in the face of credit strategies,” Stucke notes. Even though some credit managers might perform well, they’ll have to “do something pretty clever. It’s one reason we’ve been moving out of these strategies into equity-oriented ones.”