5 Investment Themes To Consider For 2017

by: Kevin Mahn


Emphasis on U.S. stocks over international stocks.

Consider different market capitalizations to help deal with strong U.S. dollar.

Don’t discount the benefits of a globally diversified portfolio.

Understand the role of bonds in income and growth-oriented portfolios.

Selectively include “Trump Trade” sectors as appropriate.

1. Emphasis on U.S. stocks over international stocks

While not abandoning international equities altogether (see Theme 3 below), I believe that it is worthy to consider overweighting U.S. equities to start 2017 given heightened optimism for U.S. economic growth and accompanying U.S. stock market growth in the New Year as a result of the election of Donald Trump as the new president of the U.S., backed by a Republican controlled U.S. Senate and House of Representatives. According to TheWeek.com, this is only the second time since 1929 that Republicans have been in control of all three areas. Additionally, having all three legs of the federal government stool controlled by one party may provide some tailwinds to U.S. stock market investors in 2017. To this end, based on a MFS research report entitled, "Primaries, caucuses, and elections…oh my!", it appears from the chart below that although the combination of a Democrat president and a Republican Congress has produced the best historical returns from 1961-2010, on average, for the stock market (which is defined in this case by the S&P 500 index), the stock market still experienced an average return of 12.1% when the White House and Congress were controlled by the same party.

Political Control

Average Return for the
S&P 500 Index

Democrat President / Republican Congress


Republican President / Democrat Congress


White House / Congress Controlled by Same Party


Either Party in White House / Split Congress


Please note: The Dow Jones Industrial Average (DJIA) measures the U.S. stock market. Figures referenced are price change only and do not include the impact of reinvested dividends. The Standard & Poor's 500 Index (S&P 500) measures the broad U.S. stock market. It is not possible to invest directly in an index. Past performance is not a guarantee of future results.

As a result, the psychological achievement of "Dow 20,000" may serve as more of springboard for the next leg of this secular bull market as opposed to being a market top for this bull market rally that some are suggesting.

2. Consider different market capitalizations to help deal with strong U.S. dollar

Rising interest rates in the U.S., coupled with declining or stagnant interest rates across the rest of the globe, could result in a stronger U.S. dollar, despite the stated reservations of this happening by President Trump. This could, in turn, put pressure on multi-national U.S. companies that derive a significant portion of their revenue overseas.

As a result of the expected U.S. dollar strengthening, certain mid-cap and small cap U.S. companies, who generally have less of an overseas focus when compared to their large cap U.S. counterparts, may be worthy of consideration to help minimize some of the strengthening U.S. dollar risk while still allowing for allocations to U.S. equities in general. Certain currency investment strategies may be worthy of consideration to assist in this regard as well.

3. Don't discount the benefits of a globally diversified portfolio

International equities, through International developed market, and some international emerging market, stock allocations, should still be a part of most globally diversified portfolios in 2017 as a result of the anticipated stimulation measures on the part of central banks across the globe in the new year needed to spur additional economic growth.

4. Understand the role of bonds in income and growth-oriented portfolios

For income oriented investors, bonds can provide for a dependable and consistent stream of income, and principal protection when held to maturity. Bonds, whether they are municipal, government or corporate bonds, can also provide for compounded growth opportunities when the income received from the bonds is reinvested.

Additionally, for growth-oriented investors, fixed income securities can provide investors with downside protection and diversification within a growth portfolio, especially in a highly volatile market where additional, measured, short-term flights to quality are likely.

In our view, investors should be careful not to miss out on the income and diversification opportunities offered by bonds by trying to time future, potential changes in interest rates. History has shown us that trying to time the market, or time interest rate increases or decreases, can be very difficult. With this said, it is important to understand that when interest rates do increase, bond prices may fall and yields may rise. However, rising interest rates should not impact the interest that bond holders receive on their bond holdings nor should they change the ability of these investors to receive par value on their bond holdings at maturity. Bond fund investors, on the other hand, may see the interest they receive on their fund holdings change in a rising rate environment and will not receive par value at maturity as there generally is no set maturity on bond funds.

While allocations to bonds may vary based upon market conditions and investor objectives and risk appetites, certain types of bonds, from certain types of issuers, can still find a home in most investment portfolios throughout most market cycles.

5. Selectively include "Trump Trade" sectors as appropriate

While recognizing that President Trump's suggested priority initiatives, based largely on his "Contract with the American Voter" at this point in time, are subject to change and may either a) take longer than expected to achieve, b) not come to reality or c) not deliver upon the intended results if achieved, investors would be wise to consider less significant, "satellite" allocations to areas of the U.S. stock market that many believe stand to benefit over the term of a Trump Presidency. Some examples of these potentially benefiting areas include Energy Equipment & Services, Industrials, Banks, Defense and Cybersecurity.


Disclosure: Hennion & Walsh Asset Management currently has allocations within its managed money program and Hennion & Walsh currently has allocations within certain SmartTrust Unit Investment Trusts (UITs) consistent with several of the portfolio management ideas for consideration cited above.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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