Kinnel also has his eyes on the incoming administration of Donald Trump as a potential disruptive force in 2017, as well as fluctuations in oil prices and trade policy.
“After the election, I think there was this rapid reassessment of who would be the winners and who would be the losers under a Trump administration, and that led to a retooling of portfolios and the re-pricing of assets,” Kinnel says. “Now, we’re in a wait-and-see mode. Investors have sobered a little bit. I think all fo these public battles with individual companies are making for skittishness.”
As such, Kinnel recommends broadly diversified investments for 2017.
For investors seeking to play defense, Kinnel recommends short-term bond funds like the Baird Short-Term Bond fund (BSBSX), the Vanguard Short-Term Investment-Grade fund (VFSTX), the Vanguard Short-Term Inflation-Protected Securities Index fund (VTIPX) and the T. Rowe Price Tax-Free Short-Intermediate fund (PRFSX).
“I think short-term bonds are an area where there’s just greater uncertainty for the longer-term products,” Kinnel says. “Investors might want the higher yield of longer bonds, but they’re not going to get the same level of safety because of the uncertainty around interest rates. It makes sense to bite the bullet and accept that you’re going to have to put money in lower-returning vehicles, but in exchange, those vehicles are going to provide the safety you would expect from fixed income.”
Since U.S. investors tend to display steep home-country bias, Kinnel also suggests opportunistically diversifying to foreign equity and bond funds. Recommendations include the T. Rowe Price International Discovery fund (PRIDX), the Causeway International Value fund (CIVVX), The Templeton Global Bond fund (TPINX) and the Vanguard Total International Stock Index (VTIAX).
For low-cost access to both domestic and international stocks, Kinnel recommends global stock funds like American Funds Capital World Growth and Income fund (CWGIX) and the Artisan Global Value fund (ARTFX).
“Generally, I think some of the best managers can be found in global funds, and it makes sense to give them room to run their strategies,” Kinnel says. “I like having managers who can find the best investments anywhere. Also, right now international equities, especially emerging markets, are cheaper than they were before.”
Kinnel suggests emerging markets funds like Matthews Asian Growth and Income fund (MACSX) and Fidelity New Markets Income fund (FNMIX).
In a contrarian call, Kinnel also recommends that investors look for quality management in the downtrodden large-cap growth category, recommending the Primecap Odyssey Growth fund (POGRX) and the Fidelity Contafund (FCNTX).
“Larger growth is compelling because it underperformed dramatically over the past two years,” Kinnel says.
For 401(k) investors, Kinnel recommends target-date funds, singling out Vanguard’s lineup of TDFs as among the best.
Finally, Kinnel says that investors could also seek opportunities in recently rated funds that could be poised to perform well in the future. Morningstar Medalists, for example, are funds that the firm’s analysts believe will outperform their benchmarks and their peers over periods of at least five years. Among the recommendations are three newly rated Morningstar Medalists: the gold-medal T. Rowe Price Tax-Free Income fund (PRTAX), the silver Fidelity Mortgage Securities fund (FMSFX), and the silver FMI International fund (FMIJX).