June 6, 2011

Jason D. Pride, CFA Director of Investment Strategy Portfolio Fix: What to Do About the Latest Growth Scare

 

In his latest investment-strategy outlook, Jason Pride of the investment firm Glenmede notes that the U.S. is in the midst of a “soft patch, with Fed stimulus about to end and politicians still at an impasse.” His portfolio advice? “Emphasize relative value opportunities within asset classes,” he wrote in his weekly report, released early Monday.

“Last week’s employment report underlined these concerns [over the coming end of QE2], throwing doubt at the economy’s most important engine for sustainable expansion,” Pride explained. “The slow-down could be temporary, but the risk of a more material slow-down has increased.”

Meanwhile, the CFA says that emerging-market monetary tightening may start to slow as inflationary pressures diminish. In Europe, Greece appears positioned to receive an expanded loan package from the IMF/EU, “but the specific details, particularly as to how the private sector lenders ‘share the burden,’ ” he added.

Europe’s core remains in very strong shape, according to Pride, and inflation may be backing off -- but the ECB still looks hawkish. Spain does not appear to have been badly shaken by recent events surrounding Greece, he says.

As for the U.S. debt ceiling, the Treasury is employing evasive actions to avoid breaching that limit before August 2. “The likely outcome: a compromise to increase the debt ceiling combined with near-term cuts, future deficit targets and triggers for further automatic spending limits and tax increases. This would not be the long-term solution, but would buy time and embed incentives to follow through,” Pride explained.

Investment Themes

Since traditional portfolio protection is expensive, Pride suggests that investors underweight low-yielding investments such as cash and Treasuries and utilize alternative risk control, such as hedge funds, secured options strategy and high-quality equities.

He also is stressing value opportunities within asset classes, meaning U.S. large caps and European and Japanese multinationals. The analyst also emphasizes that portfolios be positioned to benefit from growth in emerging-markets middle class and via direct emerging-market investments or via multinationals selling into emerging markets.

To address the need for investors to protect against inflation and developed-currency devaluation, Pride advises that investors look at emerging-market currencies and a broad/active commodity basket.

(Philadelphia-based Glenmede has more than $19 billion in assets under management.)

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