Many leading strategists and portfolio managers contend that there is a bubble, but one that primarily is confined mainly to tech shares. Shares of energy companies, retailers, banks, chemical concerns and companies in a host of other industries are hardly in bubble territory, Bernstein said.
He’s not alone in that conviction. Miller noted that he is buying energy companies for the first time since 1986, after oil infamously went bust.
Aside from Big Tech, which has gone sideways for six months now, it’s not that obvious where the traps are outside of businesses like retailing and hospitality that have been directly impacted by the pandemic.
Going Global
Many American investors may barely have noticed, but emerging markets have been on a roll for the last two years. The MSCI Emerging Markets Index climbed 18.4% in 2019 and 18.3% in 2020. A longtime skeptic of emerging markets, even Bernstein now considers the asset class worthy of a look.
At the depths of the financial crisis in 2008, “nobody was saying emerging markets would emerge unscathed,” recalled Research Affiliates founder Rob Arnott. Back then, the consensus was they needed developed markets to sell their goods and commodities to. In fact, they came back from the crisis faster than other markets, advancing 78.5% in 2009.
Arnott thinks a replay of that scenario is possible. At present, concerns center on their inadequate health-care systems. “Emerging markets may suffer more human damage but less economic damage,” he maintained. “They are far more accustomed to crises like [the pandemic] because they happen much more often” in less developed countries.
Perhaps the biggest surprise awaiting advisors and their clients is that the 11-year bull market run has left American investors “geographically myopic,” Bernstein argued. New innovation and disruption ETFs are proliferating on a weekly basis.
All ARK Invest’s Cathie Wood has to do is announce a new space ETF, and the entire sector goes wild.
“Returns outside the U.S. could be substantially better than inside,” Bernstein continued. “I’m not saying the U.S. will have a lost decade, however.”
What he is saying American investors are overly concentrated—too many are sitting on one side of the boat. The U.S. dollar has been softening for most of the last year and the trade deficit is bulging. If non-U.S. investing stages a comeback and money continues flowing out of America, a lot of people could find themselves on the wrong side of the boat.