2014’s global economic expansion

I recently invited Doug Cote to Denver for a talk about the economy, where it may be headed and which sectors he believes are best positioned to potentially benefit from the current climate. Doug, Chief Market Strategist for Voya Investment Management, discussed his investment philosophy – focus on the fundamentals – as well as some of the broad, real trends that he sees going on in the economy.

Here’s a brief summary of some of the main points he made in his presentation:

• The first quarter delivered good news and bad, but nothing that would derail equity markets from their pursuit of new highs.
• Though bonds outperformed equities in the quarter, positive performance was broad-based.
• Resurgence in the manufacturing sector – driven in part by the monumental gas boom – is finding its way into corporate profits.
• The more acute issues in the emerging markets have eased, fueling a V-shaped comeback by their equity markets.

So what does that mean for your portfolio? Morgan Stanley Wealth Management Chief Investment Officer Michael Wilson believes “equities are still likely to outperform bonds over the next 12 months despite bonds’ modest outperformance for the year to date.” He says “hyper-growth stocks as a group are not likely to resume their leadership role this cycle, although some will do just fine. Selectivity will be critical.

Meanwhile, Wilson adds that “laggard sectors like energy, materials and large-cap tech are likely to have further to run as companies exhibit late-cycle behavior such as increasing capital spending and engaging in mergers and acquisitions.” According to Wilson, “Foreign stocks should also do better, especially in Japan and peripheral Europe where the economic recoveries are still in the early stages.

While alternative investments are not suitable for all investors, I urge clients to consider them in their portfolios as a way to mitigate the risk from higher volatility in traditional stocks and bonds.