Since the small-cap market is "less efficient", it is important to do active stock selection and identify the best opportunities.
While some sectors are already quite expensive, some experts believe the S&P 500 hit an all-time high in March. There could be more uncertainty, with analysts expecting the US Federal Reserve not to cut rates despite the central bank indicating it is moving forward with three rate cuts this year.
Additionally, some are advising investors to get out of cash if rates actually decline.
If you had a million dollars to invest right now, what should you buy?
Let’s find out.
The 60/40 rule
The 60/40 portfolio is a good starting point for many investors. In fact, Aaron Benson, a portfolio manager at investment bank Baird, says he uses this strategy for many of his clients’ portfolios.
It would allocate about 60% to stocks like this: 15% each to US large-cap growth stocks and US large-cap value stocks; 4% to small capitalizations; and 8% to mid-caps. Another 15% would go to developed international equities and emerging markets.
He stressed that since the small-cap market is “less efficient,” it is important to do active stock selection and identify the best opportunities.
“Small-cap stocks on a P/E basis are the cheapest since the tech bubble, compared to large caps,” he said. “We see this situation more as a long-term opportunity.”
With a million dollars to invest, it would be "sensible" for investors to put their money into both small- and mid-cap stocks now, he said.
Benson added that global stocks look "very cheap" right now, compared to their U.S. peers. “So we feel very comfortable including them as part of the allocation with new capital to invest.”
As for fixed income, Benson would allocate about 40% like this: 10% in short-term fixed income securities; 25% in medium-term fixed income securities; and 3% in high-yield bonds.
A final 5% would go towards real assets, which are "good diversifiers" compared to stocks and bonds, he said. He cited real estate, infrastructure and raw materials as examples.
Baird’s assets under management are more than $405 billion, while private wealth management’s assets under management are more than $275 billion. The average customer account size is approximately $1.2 million.
Chris Fasciano, senior portfolio manager at Commonwealth Financial Network, also believes that the 60/40 portfolio is "again a noteworthy allocation".
For the 60% allocated to stocks, it would focus on US large-cap growth stocks, value stocks, small- and mid-cap stocks, as well as international stocks. As for bonds, he likes medium-term fixed income.
The energy demands of AI, technology and healthcare
If you’re an investor interested in focusing on technology and AI, check out the allocation from Shams Afzal, managing director at Carnegie Investment Counsel.
A good portion of its model portfolio is made up of investments in technology and industrial stocks such as major AI and semiconductor players.
“With AI becoming mainstream in 2023, it has sent investments in cloud computing and storage capabilities into data centers soaring. Valuations in the industry leave little room for error, and multi-year growth is almost a foregone conclusion in semiconductors, data centers and other verticals,” Afzal said.
“All of this was clear in Nvidia’s recent earnings which showed 400% year-over-year growth in their data center business alone,” he said.
As a result, he said, there is "urgency for grid modernization and future preparedness" for energy needs driven by high-scale computing. Afzal mentioned one stock to play on AI’s energy needs: Watsco.
Overall, the portfolio it proposes based on ETF includes the following instruments with related assignments:
- US SPDR S&P 500 Growth (SPYG): 12%
- US SPDR Tech Sector (XLK): 26%
- VanEck Semiconductor (SMH): 5%
- US SPDR Industrials ETF (XLI): 8%
- Health Care Select Sector SPDR Fund (XLV): 10%
- Financial Select Sector SPDR Fund (XLF): 9%
- Energy Select Sector SPDR Fund (XLE): 5%
- iShares MSCI Mexico ETF (EWW): 10%
- Franklin FTSE India ETF (FLIN): 5%
- US Government Bonds: 1 year or less to maturity - 10%
As for international stocks, Afzal likes Mexico as it is a direct beneficiary of China’s dwindling foreign direct investment. He added that he is optimistic about India for three reasons: it remains the leading destination for sourcing high-tech labor; is undergoing a digital transformation across various industries; and is seeing “healthy” demand from its “substantial” middle class.
Stocks to buy
Louis Navellier, president and founder of Navellier & Associates, would be 100% invested in stocks.
He has a portfolio for the "moderately aggressive" investor, although he says much of the risk comes from small-cap stocks.
Overall, he said, "The United States is somewhat of an oasis now, because obviously China seems to have a real problem."
While buying bonds may be a good idea now as yields are set to fall, U.S. investors pay more taxes on bonds than on stocks, Navellier said.
“I would rather have long-term capital gains, which are taxed at 20%, than bond interest taxed at 37%,” he added.
These are the first 15 positions of his portfolio, with related assignments:
- Nvidia: 11.88%
- Super Micro Computer: 4.94%
- Eli Lilly & Co: 4.12%
- Novo Nordisk: 3.96%
- Emcor Group: 3.07%
- Toll Brothers: 2.74%
- EOG Resources: 2.74%
- Quanta Services: 2.65%
- Exxon Mobil: 2.59%
- View Energy: 2.57%
- Paccar: 2.49%
- ConocoPhillips: 2.25%
- Crowdstrike: 2.22%
- Microsoft: 2.18%
- Spotify Technology: 2.15%
He is very bullish on Nvidia and Super Micro Computer right now, as their revenues are "growing rapidly" and Nvidia still dominates the chip industry.
Navellier also has other global stocks in its portfolio, including Chinese electric vehicle maker Li Auto, Mexico’s Vista Energy, German automaker Volkswagen and Canadian gold producer Alamos Gold.
The average amount of money his clients invest is $1.3 million, and his firm manages more than $1.2 billion.
| Disclaimer The information and considerations contained in this article should not be used as the sole and principal basis on which to make investment decisions. The reader retains full freedom in his own investment choices and full responsibility in making them, since he alone knows his risk appetite and his time horizon. The information contained in the article is provided for informational purposes only and its disclosure does not constitute and should not be considered an offer or solicitation to public savings. |
Original article published on Money.it Italy 2024-05-15 05:58:00. Original title: Ecco come investe chi ha 1 milione di euro
