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Best places to put money in 2012

moneylogo040411_optBY WARREN BOROSON
NEWJERSEYNEWSROOM.COM
BOROSON ON MONEY

Despite the catastrophe in Japan, financial advisers at RegentAtlantic Capital in Morristown remain rather optimistic about the U.S. economy.

Their investment of choice: large-cap U.S. stocks, especially those with a global presence.

In a talk in Ridgewood last week, Brian Kazanchy, CFA, CFP, said that stocks in general are more attractive than fixed-income investments, with their low interest rates – rates that he called “troubling.” Whereas the 10-year Treasury is yielding 3.4 percent, U.S. stocks have an earnings yield of 6.5 percent -- which is in the “fair value range,” he said.

Still, Kazanchy strongly endorsed a diversified portfolio. From 2000 to late last year, he said, the U.S. stock market went nowhere.But a diversified portfolio with exposure to many different asset classes would have performed better – because U.S. small caps, international small caps, emerging markets, and real estate had positive returns during that period when U.S. large caps (the S&P 500) were flat.

His overall forecast: Mostly sunny, with a chance of occasional showers.

Negatives he cited: a slow recovery from the recession in developed countries, imbalances in global trade, Middle East turmoil, possible inflation, a weak housing market, a weak job market, and European debt problems.

On the other side of the ledger, he went on, the current economic expansion should continue. Past recessions have lasted 15 months on average; the latest, 18 months. Expansions after a recession tend to last 43 months; we’re in only the 21st month of the current expansion.

Also, core inflation – skipping energy and food – is “benign.”

Why a preference for large-cap stocks? His answer: They have plenty of cash on hand, which gives them the flexibility to increase dividends, engage in acquisitions, or buy back their own stock. And while emerging markets have done spectacularly well the past couple of years, he said, they remain good long-term investments. kazanchyBrian031711_opt

As for the price of oil, the higher prices go, the more viable that alternate sources of energy become – which is why oil-producing nations don’t want oil prices to go through the roof.

Where can one find bargains in stocks? Kazanchy said that many solid stocks are being overlooked because the countries they are domiciled in are regarded with disfavor. Almost everyone loves Exxon stock, he said, but what about Total, in Spain? Exxon trades at more than 12 times earnings; Total, at only 8-9 times earnings.

Turning to fixed income, he maintained that the 30-year bull market has come to an end – interest rates have declined from 16 percent in 1981 to 3.4 percent now. “Those were the years when you couldn’t lose.”

Today, investors should just want bonds to keep pace with inflation.

Where to invest? Kazanchy suggested two mutual funds that invest opportunistically – JPMorgan Strategic Income Fund and Eaton Vance Global Macro Appreciation Fund. These funds may invest in all segments of the bond market, both domestic and foreign. The can also sell bonds short (bet on their going down).



 

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