newjerseynewsroom.com

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

You’re not sure where to invest now?

Some smart people recommend:

+stocks in general -- especially technology stocks;

+high-yield bonds;

+emerging market stocks and bonds

What might you avoid now? 10-year treasuries, which seem to be the popular favorite despite their lowly yield (1.9 percent).

These smart people happen to toil in the vineyards of T. Rowe Price, the giant investment company in Baltimore. Its yearly financial conference is a must for financial journalists. The dominant theme at this year’s recent conference, at the Princeton Club in New York City, was: emerging markets. “We expect anemic growth in developed markets and moderating but durable growth in emerging markets,” the speakers concluded. “Emerging markets offer intriguing growth prospects over the longer term.”

R. Scott Berg, a portfolio manager, believes that emerging market stocks are underappreciated – and underrepresented in investors’ portfolios.

T. Rowe analysts had in mind not necessarily the fast-growing BRIC countries (Brazil, Russia, India, China), but smaller ones: “With China slowing, much of our attention has turned to smaller emerging markets.” Exceptions: those that depend too much on their exports, like South Korea and Taiwan.

Among the non-BRIC countries that T. Rowe Price is investing in are Thailand, Turkey, Indonesia, the Philippines, Mexico, Argentina, and Columbia.

What kinds of emerging-markets stocks does its large-cap stock fund favor? Commercial banks – by a tremendous margin. The fund’s single largest holding: a commercial bank in Brazil, Banco Santander Brasil, with 1.8 percent of its assets. (In second place: JPMorgan Chase.)

Right now, according to the conference, emerging markets constitute 13 percent of global market totals; by 2020, the percentage should climb to 19 percent; and by 2030, to 31 percent.

The 12-month price-earnings ratio of emerging-market stocks (a measure of value) is 9.48 versus 10.84 in the entire world; the long-term median p-e of both is a much higher 12.5 times.

Morningstar Mutual Funds likes these no-load, reasonable-minimum-first-investment funds: Driehaus Emerging Markets Growth ($10,000 minimum, 800-560-6111); Eaton Vance Parametric Tax-Managed Emerging Markets I ($50,000 minimum; 800-262-1122); Harding Loevner Emerging Markets ($5,000 minimum; 877-435-8105); ING JPMorgan Emerging Markets Equity Portfolio S (no minimum; 800-366-0066); SsgA Emerging Markets Institutional ($1,000; 800-647-7327); USAA Emerging Markets (($3,000; 800-531-8722); and Vanguard Emerging Markets Stock Index ($10,000; 800-662-7447).

As for T. Rowe Price Emerging Markets Stock, Morningstar writes that “while this fund has real appeal, it requires a high risk tolerance and a long time horizon.” ($2,500; 800-638-5660.)

As for investing elsewhere, stock-pickers are having a hard time these days because U.S. large-cap stocks are moving in lockstep – all are being treated roughly the same. Top-down investing is pushing aside bottom-up investing; the macro environment is dominating the valuations environment. But this might be “setting the stage for active managers to outperform in the future.”

Reasons T. Rowe gave for optimism about U.S. stocks:

• p-e ratios are back to 20-year lows;

• the Standard & Poor 500’s dividend yield hasn’t looked so good compared with bonds since the Kenendy era;

Balance sheets have recovered significantly from the 2008 downturn. “Corporate coffers are chock-full”