US Mega Caps: Another idea to consider, particularly for those wary of investing in potentially more risky emerging markets, is to look toward US mega caps, accessible through the iShares S&P 100 Fund (OEF). They’re the cheapest area of the US market and they tend to be less volatile than small- and mid- cap names. Plus, if we do see some pick up in stock market volatility over the summer, as I expect, mega caps aren’t likely to suffer as much as small caps.
Certain Cyclical Sectors: In recent years, investors have been paying a big premium for the yield and relative safety of defensive sectors such as consumer staples and US utilities. In contrast, I’d put new money to work in cyclical sectors such as energy and technology, which arguably represent better long-term values than their more expensive defensive counterparts. These sectors are accessible through the iShares Dow Jones U.S. Technology Sector Index Fund (IYW) and the iShares Dow Jones U.S. Energy Sector Index Fund (IYE).
Looking forward, though I do expect that market gains will likely slow and become more volatile, I believe that global stocks will finish 2013 higher. Today’s slow, but still positive, global economic growth, generally benign inflation and likely continued accommodative monetary policy should be supportive of risky assets.
The bottom line: Instead of worrying about whether it’s too late to get into the market, investors looking to put cash to work should focus on where to find relative value.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.