Money managers and financial advisers need to start looking beyond domestic equity and other traditional asset classes for risk-adjusted returns in the current market, according to Kevin Mahn, chief investment officer with Hennion & Walsh Asset Management Inc.
“Instead of looking for a needle in a haystack, you have to be more inclusive of different types of sectors and asset classes,” he said. “Domestic equity has just had a phenomenal run that defies most historical quantitative precedent, and at this point, most of the opportunities exist outside U.S. borders.”
Mr. Mahn, who builds portfolios using a mix of exchange-traded funds, exchange-traded notes, closed-end funds and individual stocks, said he is increasing allocations to commodities, certain emerging markets, convertible bonds and some preferred stocks.
In terms of domestic stocks, he is still selectively bullish on the health care, semiconductor and transportation sectors.
“If the stock market follows the traditional pattern that we usually see in the year after a strong bull market recovery, we can expect some muted growth for both the stock market and the economy in 2010,” he said. “I don't think there's going to be a sharp stock market pullback, but I do think there are reasons to be concerned.”
Mr. Mahn is anticipating a 6% to 8% gain by the S&P 500 this year. He did warn that large-cap domestic stocks might already be overvalued, however.
Hennion & Walsh has $200 million under management and $2 billion under advisement.
Mr. Mahn's concerns about the stock market are tied to a list of issues facing the U.S. economy including high unemployment, weak consumer spending, questionable corporate earnings, low interest rates and health care reform efforts.
“A lot of what we saw last year in the stock market was the result of investors anxious to make back their losses,” he said. “The question now is, how are consumers, representing 70% of the economy, going to feel about spending money if they're not working?”
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