The following is an excerpt from the commentary of Dr. Bob Froehlich, executive vice president & chief investment strategist, wealth management, at The Hartford, for the week of January 10, 2011.
Of all of the 52 weekly market commentaries I do each year, this one's always the most exciting for me. I've been doing these top 10 investment themes off and on for the past 18 years, and this marks my second top 10 commentary with The Hartford. Here's how these top 10 investment themes work: I don't change them with each and every economic release or earnings surprise—these top 10
themes are written in stone. At midyear, I'll write a midyear market commentary on them—a midterm “report card,” complete with grades from “A” to “F.” Then, after the year ends, I'll write a year-end report card commentary early in 2012 giving a final grade for all 10 investment themes for 2011.
10. Interest rates will rise
Strategy:> Overweight products that have a positive correlation to a rising rate environment.
Investment Thesis: I believe it's no longer a question of “if,” it's a question of "when" rates will go higher. They can't go lower, because interest rates, as measured by the federal funds rate, are currently at zero. With inflation in the pipeline—because every central bank in the world has been printing money—it's also only a question of when, not if, inflation will show up. With inflation on the horizon, interest rates must rise in order to tame future inflation fears.
9. Better, faster, cheaper and more efficient. (Technology
Strategy: Overweight the technology sector.
Investment Thesis: As 2011 unfolds, most businesses will be faced with a two-part, multiple-choice question as demand turns around and they remain understaffed since the market meltdown of 2008. In order to meet this growing demand, businesses must either 1) hire a few additional employees to meet this demand, or 2) improve on productivity by upgrading their technology. The answer
is “door number two.” Why? If businesses solve the demand problem by hiring more employees, they must provide them with healthcare coverage and other benefits, create a career path for them, and give them time off for vacation and health reasons—all the while listening to them whine and complain. With technology, all they need to do is buy a computer and plug it in—it takes care of the rest.
8. The revolution continues
Strategy: Overweight the industrial sector
Investment Thesis: I believe that in 2011, the global economy will expand by nearly 5.5%. One of the biggest industry beneficiaries of this global economic boom will be the industrial sector. When someone says “industrial sector,” think mining, farming, refining, construction, and manufacturing—all the things poised to benefit from a booming global economy.
Click here to read the remainder of Dr. Bob's 10 for 2011.
