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Time to Pause

August 31, 2012

The market's upside could also be constrained, at least in the near term, in my opinion. This month's commentary provides some perspective on this environment for longterm investors.

-Richard Golod, director of global investment strategies, Invesco

  • Overweight US. Recent positive economic and market developments have probably taken a third round of quantitative easing (QE3) off the table for now. I believe a delay in additional easing could also delay the equity markets' continued advance in the short run. Although improvements in the Economic Cycle Research Institute (ECRI) Weekly Leading Index and the Citi Economic Surprise Index for G10 countries would suggest adding additional risk to portfolios, this trading opportunity may be too brief for investors to capitalize. Rather, I believe long-term investors should continue to add high-quality, dividend-paying, large-cap companies to equity portfolios.

  • Neutral weight Europe. Supportive statements from European Central Bank (ECB) President Mario Draghi and German Chancellor Angela Merkel have propelled European equity markets lately. Although I believe market lows could be behind us, economic data and market sentiment indicators remain in decline. This warrants continued defensiveness in European equities, in my view, with a focus on highquality, dividend-paying, large-cap multinationals.

  • Overweight emerging markets. The asset class is likely to remain out of favor with investors until there is more clarity on the European debt crisis and enough time elapses for any additional policy stimulus to work through the economies. However, I believe emerging market equities still have one of the most attractive risk-reward profiles for investors with the appropriate risk tolerance who are seeking the potential for long-term growth.

 

 

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