How can you protect your investments, and where are the pockets of value?
Only twice since 1950 have equities investments underperformed fixed-income vehicles during a period of inflation.
During the past decade, investors were well advised to run their portfolio with a reduced level of diversification and to focus on one key market, i.e., the US stock market. US blue-chip stocks returned more than 8.2% per annum, while international stocks did less than 2% during the same period. Investors who ventured into volatile emerging markets such as China and Brazil earned less than 1%.
However, US stocks are now no longer cheap, and neither are they the only “belles at the ball.” In fact, the most attractive current risk/reward opportunities are no longer primarily in the US, but elsewhere, particularly in the emerging markets (EM). On the back of the assumption that economic activities are expected to progress more in EM than in the US (yet from lower levels), EM are attractive for the years ahead. In fact, EAFE markets were up 23% last year, while EM rose more than 30%, greatly outperforming developed markets.
