Eoin Treacy's view -
As correlations among stocks and other assets classes break down, there will be a significant divergence in the performance of “quality” assets versus “junk” assets. A prudent money manager should be prepared for this market shift by focusing on shorter duration assets, which goes for both credit and equities. I expect longer duration equities, such as growth stocks with lower near-term earnings to underperform more value oriented stocks such as consumer staples, telecom, and energy sectors, on which I have focused. Today’s market appears to be the inverse image to the early 1980s. Back then, investors were misled into hiding out in cash as stocks were perceived as too expensive in a high interest rate environment. Today, very few hold cash as stocks appear cheap relative to low bond yields. This is a backward looking strategy derived from a relative value argument that is no longer operable. I suggest more than a little risk aversion, as I have maintained, would be prudent in times like this. As I have often said -- preserving capital is paramount, not winning friends.
Money has been pouring into ETFs over the last couple of years which is a testament to the success of the low fee argument, against a background where the success of momentum strategies has reduced the allure of stock picking. The success of the ETF business has contributed to the consistency of the trends evident on the primary Wall Street indices and the low volatility condition that has prevailed over the last six months in particular.
This section continues in the Subscriber's Area. Back to top