1. Go for value. Rather than chase last year’s winners – a poor strategy year-to-date – investors should consider embracing some of last year’s losers and adopting a general bias toward value-oriented areas of the market, as many investors do appear to be doing. Year-to-date, U.S. value stocks advanced roughly 2.1 %, while U.S. growth equities are flat.
2. Overweight large and mega cap stocks. As I’ve long been advocating, I believe that investors should consider trimming their allocations to small cap stocks in favor of gaining greater exposure to large and mega cap names. To be sure, large cap names are no longer cheap. U.S. large caps, for instance, finished March at 17.25x trailing earnings, comfortably above the 60-year average and the highest level in four years. Yet large caps names have still gained around 1.5% year-to-date, while small caps are down nominally on the year.
3. Embrace international markets. As I’ve been noting for some time, emerging markets can offer compelling long-term value. In the developed world, meanwhile, I like Japan and the eurozone. While Japanese stocks have struggled this year, European equities have outperformed U.S. stocks. And though both Japan and Europe are less profitable, and are likely to grow slower, than the United States, they both possess one characteristic in short supply locally: value.
Sources: Bloomberg, BlackRock Research
Russ Koesterich, CFA, is the Chief Investment Strategist for BlackRock and iShares Chief Global Investment Strategist. He is a regular contributor to The Blog and you can find more of his posts here.