Heritage Financial recently hosted a client event headlined “Global Market Outlook” presented by Jeffrey Kleintop, Senior Vice President at Charles Schwab & Co. and its Chief Global Investment Strategist. Kleintop is responsible for analyzing and discussing international markets, trends and events to help U.S. investors understand their significance and financial implications. He is frequently cited in a range of national media outlets, including The Wall Street Journal, The New York Times, Barron’s and Financial Times, and he is a regular guest on news outlets including CNBC, Bloomberg, Fox Business News, PBS, and ABC News. He has been cited in The Wall Street Journal as one of “Wall Street’s best and brightest”, and so it was a real treat to be able to directly share Jeff’s insights with our clients.
Kleintop’s presentation came at an interesting time in the markets. After a robust 2017 in which most asset classes performed well and international stock markets outperformed the U.S. market, led by emerging markets stocks returning 37.28%*, 2018’s strong start has turned into a year that up until recently saw strong U.S. stock market returns and negative returns in almost every other asset class. It’s times like these where you see such a divergence in returns that can cause investors to lose their discipline and chase hot performance (in this case of U.S. stocks).
After first walking us through how to think about the recent tax cuts and tariffs impact on the economy and the indicators he watches that can signal a recession, Kleintop turned to the focus of his presentation: what to make of the international markets, particularly relative to the strong U.S. market we’d seen until this week and where people should be investing today.
His Where to Invest segment had three themes we want to highlight.
The first theme was that even though he did not see any immediate cause for concern regarding a recession or bear market, he is watching the signals. While the current economic cycle isn’t over, the next bear market is not far away. Avoid market-timing since no one can tell you when to get back in after a market downturn begins, but protect yourself by maintaining a diversified portfolio.
The second theme was that the current divergence in performance between international and U.S. stocks is wide, and historically when that has happened it has signaled a reversion to the mean for both asset classes. Kleintop cautioned against abandoning international investing and recommended a globally diversified stock portfolio to benefit from the potential upswing in international stocks that could be pending if history is any guide.
The third theme was similar in that Kleintop noted a large performance spread between global value and global growth stocks as growth has outperformed value for much of the past decade. At times like this, investors can chase performance and shift their portfolios more to growth and avoid value stocks, which Kleintop cautioned against. When the performance gap between the two has been this wide before, continuing to own value stocks has paid off as value rebounded while growth struggled.
We believe our current portfolio positioning is appropriate and prudent given these above-mentioned themes. In light of the concerns about a possible bear market and us being late in the economic cycle, we have diversified our portfolios globally, added high quality fixed income, and select alternative investments where appropriate to provide downside protection and different sources of returns. As already discussed, we have not chased the recent performance of U.S. stocks and allowed it to alter our global stock outlook. We continue to believe that a global stock portfolio is the most sensible starting point for any stock investor. Finally, as value investors, we have a tilt in our portfolio toward value stocks, both in the U.S. and the international markets.
A well-thought out investment strategy linked to your financial plan is critical to helping investors reach their goals. Assuming you entered any market environment with those in place, it’s important not to let market moves change your plans.
*source: Morningstar, Inc.
Opinions and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The opinions expressed herein do not constitute investment advice. We believe the information provided here is reliable but should not be assumed to be accurate or complete. The views and strategies described may not be suitable for all investors