Gundlach Was Right: Agricultural Commodities, Gold Miners Rode High in Q1

“Unrest has resurfaced in Turkey, and the crisis in Ukraine has brought uneasy relations between Russia and the Western allies to a head,” Adams wrote in a recent outlook piece. “Although both these markets are a drop in the global macroeconomic bucket, the turmoil has sparked wider concern regarding slowing growth throughout the emerging markets, which have proven to be a key source of growth for large multinationals.” As a result, she and other Morningstar experts suggest a cautious approach to the current exuberance.

Their advice? Investors “should pull back on risk when enthusiasm is running high and the market’s valuation is relatively rich. Applying Warren Buffett’s ‘be fearful when others are greedy and greedy when others are fearful’ mantra, we think the pendulum is swinging closer to the side of greed at the moment. In contrast, we think investors should load up on risk when fear is pervasive and valuations are depressed.”

Still, some consumer-focused firms that will benefit in the long term from global growth are worth a look, Adams says, citing Unilever (UN) and Coca-Cola (KO). Other good defensive plays, in her view, include some firms in health care, real estate investment trusts, utilities and pipelines.

Technology stocks are trading at a premium, but energy remains an undervalued sector. The group’s top picks include Energy Transfer Partners (ETP), Tesoro (TSO) and Ultra Petroleum (UPL).

Nuveen Urges Caution

Nuveen cautions that the market’s “sharp advance has come despite many disappointing economic data releases and downward revisions to first-quarter earnings expectations” in a report released Tuesday.

“Treasury yields remain well below where they began the year, while the dollar has reversed early-year strength and is trading modestly lower relative to other major currencies,” wrote Keith Hembre, CFA, chief economist and investment strategist with Nuveen Asset Management.

Within equities, Nuveen favors large-cap domestic and Europe, Australia and Far East (EAFE) equities on a currency-hedged basis to small-cap domestic stocks.

As for fixed income, the narrowing of credit spreads and strength of corporate high-yield performance year to date prompted Nuveen to reduce its positioning and allocate proceeds to short-term fixed income.

The group also reduced its exposure to commodities due to prices spikes and speculation.

“We maintain a significant overweight to the municipal high yield market segment and an overweight to real estate assets and absolute return. We also maintain a short position in the yen,” Hembre noted.