The Outsourced Chief Investment Officer

Other than a few media spiced stories about normal joe investor making millions on a trade, the majority of retail investors’ returns are just average, but there are ways they can improve their portfolio returns.

With equity markets continuing to hit new records, the arguments for further upside versus an imminent pullback are intensifying. What direction market go will still be driven by Covid, but not for long.

Throughout the pandemic, housing has been one of the stalwarts of the economy along with the sustained level of consumer spending that was made possible by massive government stimulus.

As inflation expectations have risen, the market seems to be concerned that stronger economic growth might force the Fed to act sooner than anticipated, prompting a market selloff – particularly in growth stocks. As rates rise, valuations and earnings growth expectations decline, driving investors to seek cyclical stocks with more attractive pricing. With the 10 year now about even with the dividend yield of the S&P 500, fixed income investors might also be reallocating to bonds.

Calls of a market bubble might indicate low returns over the next 5-10 years, but not all equities are overvalued. The S&P 500 has been led higher by just a handful of companies that make up a large percentage of the index, and companies that have lagged may now provide better risk-adjusted returns as the economy recovers. We highlight some of the valuation metrics that look stretched and some thoughts on tactical allocation ideas.

Emerging market equities have historically provided investors with outsized returns but have also been the biggest decliners during global equity market pullbacks. For the last 10 years they have lagged the performance of US Equity markets by a considerable margin. But with attractive relative valuations, higher earnings growth forecasts, and underrepresentation in global portfolios, we believe they are set to reverse that trend and outperform US markets over the next 5-10 years.

The headline data on both new and existing home sales indicates a strong housing market, but some underlying data is showing signs of weakness that may lead to slower growth. Despite historically low mortgage rates, the rapid increase in home prices is reducing affordability and banks are tightening underwriting standards on both government and subprime mortgages. If these trends continue, housing momentum could begin to wane.

Too often analysts report characteristics of the ‘market’ without calling attention to the limited scope of the analysis or the breadth and depth of additional options available to investors within the same asset class. When markets are in a bubble, they tend to have been driven by Growth stocks, not Value, meaning that a market in a bubble might be a strong indicator of an opportune time to shift into Value.

With a record high number of SPAC IPOs and the success of some well-documented investments with triple digit returns, investors and advisors might be interested in evaluating a potential allocation to their portfolios. In this article I focus on a few basic criteria of the best-performing SPACs and tips on how to perform your own analysis.