Where to invest in 2022, given the havoc caused by the omicron variant, rising inflation and U.S. equities sporting relatively high valuations thanks to the stock rally?
“I have some ideas, though they come with two caveats,” Russel Kinnel, director of manager research for Morningstar, writes in a new blog post.
“First, these are long-term ideas, not picks for just 2022. Second, I go light on the macro calls here, but those I make certainly come with the idea that you shouldn’t tilt your portfolio too much because of macro factors.”
Investors should focus on their plan and good fundamentals, Kinnel writes, as these are more important than top-down considerations.
Kinnel selected 15 funds for 2022 and beyond based on several criteria:
Cheap. “I’m going to start with the very humble idea of cutting your fees regardless of the market’s ups and downs.”
Cheap II. “You can also go cheap based on valuations.” Kinnel notes that most global valuation measures say emerging markets are quite cheap. “But I must admit I’m a little squeamish about the big China weightings that most emerging-markets funds have.” Extraordinary risks of government intervention come with China’s growth potential.
Cautious. “One of the biggest mistakes investors make is getting out of the market.” Kinnel identifies a few cautious funds that will maintain some exposure to stocks and bonds. “These dependable funds should weather a downdraft well.”
Sustainability. Environmental, social and governance investing is supposed to point investors toward businesses that manage these risks well and away from ones that court trouble by ignoring or paying lip service to those perils, Kinnel points out. “We’ll have to see if ESG achieves its goals, but in the meantime, there are some funds that marry fundamental investing and ESG quite well.”
Foreign dividends. “Foreign dividend payers haven’t rallied nearly as much as those in the U.S. As a result, you can get a nice yield from some foreign dividend-focused funds.” Kinnel notes that value appears historically cheap relative to growth even after a year of outperformance, “so this seems enticing” — though the two funds he highlights also score poorly on sustainability factors.
Upgrades. Morningstar upgrades a fund’s rating from time to time, say, from neutral to silver or silver to gold. “Always pay attention to analyst upgrades because it signals improving situations among strategies’ people and processes.”
See the gallery for Kinnel’s 15 funds for 2022 and beyond.