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Jul 01st
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Where to invest now and where not to: Wells Fargo expert shares insight

moneylogo040411_optBY WARREN BOROSON

In this environment, where interest rates may shoot up, investors in bonds had better be darned careful, a Wells Fargo spokesman warned last week.

If the yield on Treasuries bops up a mere 2.5 percent, you can lose 20 percent of your investment, said Darrell L. Cronk, CFA, regional chief investment officer for the Northeast Region for Wells Fargo Private Bank, New York City.

And, he reminded people, Treasuries’ average 10-year yield has been 6.5 percent.

Why might interest rates bop up? Because, he believes, there’s reason to be optimistic about the economy – even though he expects a slowdown in the fourth quarter. And while housing has been a big drag on the economy, it seems that housing’s worst days may be behind it.

Consumer confidence, he went on, is at a five-year high – although he himself is not sure Congress will work out a deal to avoid the so-called fiscal cliff. “It’s impossible to sort out all the issues, but we might get a start.” (Taxes are scheduled to climb next year, and government spending decline.) Still, consumers have begun shedding their debt – a good sign.

The Standard & Poor’s 500, he predicted, will return a solid 8 to 10 percent over the next year. Yes, investors are still in a “sour” mood, remembering the 2008 debacle – although we’ve seen double-digit returns recently, and with low volatility.

He’s especially optimistic about emerging markets, pointing out that that’s where 85 percent of the world’s population resides. And that section accounts for only half the global gross domestic product. Because of its likely faster growth, “It presents some good investment opportunities. People in those countries want to buy more staples.”

As for the Euro, Cronk thinks it will survive – “but we need a long period of recovery time.”  cronkDarrell112612_opt

Talking to an audience of older people, Cronk said that they actually have a few strategies to boost their retirement income:

1. Stocks.

2. Bonds.

3. Real estate.

4. Complementary investments – like private equity, hedge funds, and managed futures.

“None of these are all good or all bad,” he said, but exposure to all of them can give investors a better-diversified portfolio.

Meanwhile, cash isn’t paying much. So, Cronk suggested, your best bets may be short-term bonds, emerging-market debt, and master limited partnerships – but MLPS “only if you do your homework.” As for preferred stocks, he warned that despite their generous dividends, they tend to be very volatile.

His own firm is currently overweight in short-term bonds, growth stocks, and conservative/diversified hedge funds -- the last of which have been doing well this year.

Where is the firm underweight? Developed countries’ bonds and value-type stocks – the last, presumably because they’ve become high priced. Also, health care. I asked him about this. Yes, it’s because of possible overregulation.

What general investment areas does he like now? He named four: consumer discretionary, information technology, materials, and telecommunications.

At Wells Fargo, Cronk’s responsibilities include leading the region’s investment professionals who offer high net worth individuals a customized approach to portfolio management.


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