June 6, 2011

Portfolio Fix from Glenmede: What to Do About the Latest Growth Scare

Time to look more at value plays, boost emerging markets, and underweight cash and Treasuries, says Glenmede’s Pride

In his latest investment-strategy outlook, Jason Pride of the investment firm Glenmede notes that the United States 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,” Pride 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,” said Pride (left) of Philadelphia-based Glenmede. The firm has more than $19 billion in assets under management. “The slowdown could be temporary, but the risk of a more material slow-down has increased.”

Emerging Markets Tightening, Euro Core Strong

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,’ ” is still unclear, 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 via direct emerging-market investments or through 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.

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