Money managers offered investment recommendations ranging from U.S. stocks to high-yield municipal bonds in a session about ideas for generating alpha in 2020 at the Inside ETFs conference in Hollywood, Fla.
Jay Pelosky, chief investment officer at TPW Investment Management, is bullish on U.S. stocks. “There will be reflation in 2020, not recession,” he said. “Lower for longer global growth can lead to higher stock prices.”
A lack of tightening by the Federal Reserve also will boost equities, Pelosky said. “There is a high bar to central bank tightening. Both the ECB (European Central Bank) and the Fed have said they will err on the side of higher inflation.”
While some purchasing manager data have indicated that the manufacturing sector is contracting, Pelosky pointed out that manufacturing accounts for only 10%-15% of developed economies.
In the U.S., strong employment along with wage gains show consumers, who account for 70% of the economy, will be fine, Pelosky said. On the corporate side, earnings are bottoming, he said.
In Europe, meanwhile, fiscal stimulus is “coming to the fore,” he said. Europe’s heavy spending to reduce climate change will help stimulate demand. “The industrial cycle is rebounding,” Pelosky said. “Asian and European data are constructive.”
As for recommendations, “we favor equity over debt, ex-U.S. over the U.S., credit over sovereign and short duration over long,” Pelosky added. He likes value and growth stocks, and he likes European bank stocks.
In terms of ETFs, he suggests iShares MSCI Europe Financials ETF (EUFN), and the Emerging Markets Internet & Ecommerce ETF (EMQQ), which holds “cutting edge emerging market technology companies,” Pelosky said.
Sandra Testani, director of product management, alternatives and ETFs at American Century, is enthusiastic about high-yield muni bonds. Clients who are looking for yield and suffering from the limits on state and local tax deductions implemented in 2018 appreciate that investment, she said.
“Here’s a space where you can access tax protected yield,” she said. High-yield munis also provide portfolio diversification.
“People might not realize how high-yield munis play a distinct role from high-yield corporates,” Testani said. While high-yield corporate bonds generally trade in synch with stocks, high-yield munis have a negative correlation to equities, Testani said.
Last year saw the highest flow into municipal bond funds ever, she said. Most of that went to passive vehicles. Munis are one of the most fragmented and highly inefficient asset classes, Testani said.
Not surprisingly, she recommends her firm’s own ETF, American Century Diversified Municipal Bond ETF (TAXF).
Adam Grossman, chief investment officer for global equity at RiverFront Investment Group, listed several ETFs that he favors:
- Goldman Sachs Active Beta U.S. Large Cap Equity ETF (GSLC),
- Invesco Russell 1000 Dynamic Multifactor ETF (OMFL),
- JPMorgan Diversified Return International Equity ETF (JPIN),
- Goldman Sachs Active Beta Emerging Markets Equity ETF (GEM), and
- iShares MSCI EAFE Growth ETF (EFG).
