Where Four Pros Would Invest $10,000 Now

Data has been painting a relatively encouraging picture of the US economy, but with major companies announcing layoffs and with more interest rate hikes up ahead, you’d be forgiven for feeling that things are less than certain. The S&P 500 may be up 20% since its October low, but it’s a confusing time. Fortunately, Bloomberg recently asked four experienced fund managers where they’d invest $10,000 right now. Let’s take a look at their top investment ideas, and how you might act on them…

Idea #1: Emerging market stocks

Causeway Capital Management suggests packing your bags, metaphorically at least, and heading off to emerging market (EM) economies in search of better-performing assets. The Los Angeles-based global equity manager sees stocks from rapid-growth countries outperforming ones from the US, after a decade of trailing behind.

While emerging markets have at times been known for their risks – with regulatory issues, corruption, currency instability, and so on – in these markets policymakers and corporate leaders who want to attract foreign investors know they’ve got to be on their best behavior. Bond markets are keeping emerging market countries disciplined from making poor fiscal and monetary policy decisions. This should create a positive environment for their stocks as inflation is kept in check, productivity rises and the private sector of the economy expands to accelerate growth. What’s more, who doesn’t love a good bargain – emerging market stocks have a price-to-earnings ratio that’s about 60% lower than US stocks, and a dividend yield almost twice as large.

Which ETFs offer a good starting point?

The iShares Core MSCI Emerging Markets ETF (ticker: IEMG; expense ratio: 0.09%) is the cheapest way to invest in emerging market stocks. It gives you exposure to more than ten countries, with China making up almost 30% of the fund. If you prefer bonds over stocks, you could consider the iShares JPMorgan USD Emerging Markets Bond ETF (EMB; 0.39%), which provides exposure to bonds from over 30 countries.

Idea #2: US Treasuries and Japanese stocks

Absolute Strategy Research suggests insulating your portfolio from the risks on the horizon for US stocks by shifting to three- to five-year US Treasuries, which offer an almost 4% yield. For the more risk-tolerant investor, they believe Japanese stocks offer a compelling opportunity.

The London-based research house says it particularly likes Japanese banks for their cheap valuations (and with the Bank of Japan looking more likely to eventually raise interest rates and remove yield curve control, the sector could see an extra boost). It also likes Japan’s hotel industry now that the country has reopened to visitors. The hotels offer great service and with the weakness in the yen, they’re doing it at bargain prices.

Which ETFs offer a good starting point?

The JPMorgan BetaBuilders Japan ETF (BBJP; 0.19%) offers broad access to a basket of 277 Japanese stocks, with banks comprising 6.4%. Investors who don’t want to be exposed to potentially volatile currency fluctuations can opt for the Xtrackers MSCI Japan Hedged Equity ETF (DBJP; 0.45%). It’s more expensive, but it does provide that extra service.

Idea #3: European stocks

Global investment giant BlackRock likes the look of European stocks. Their valuations are looking cheap (trading at more than a 25% discount to US stocks on 12-month forward price-earnings ratio) and their exposure to China means they’re well-positioned for a reopening boom. What’s more, a milder-than-usual winter has helped the continent avert the crippling energy crisis and recession that many had forecast. With the European economy now on firmer-than-expected footing, Blackrock, the world’s biggest asset manager, is warming up to the region’s financial sector, France’s luxury goods, and Germany’s industrials.

Which ETFs offer a good starting point?

You could consider the Vanguard FTSE Europe ETF (VGK; 0.08%), which offers broad-based exposure to Europe’s major economies, with a particular focus on the UK, France, Switzerland, and Germany. Or if you’d like to dig deeper at a sector level, then take a look at the iShares MSCI Europe Financials ETF (EUFN; 0.49%).

Idea #4: International stocks

CI RegentAtlantic Private Wealth says cheap valuations and a US dollar that’s likely to slide lower make international stocks an attractive investment. They’re not alone in that view: the consensus opinion on Wall Street also sees international markets outmuscling their US counterparts over a ten- to 15-year horizon.

From a valuations standpoint, the MSCI EAFE index, which tracks big and mid-cap stocks across 21 advanced economies, is trading at a 10% discount to its 10-year average, with a forward price-earnings ratio of 13. That suggests considerable room to grow. And then there’s the currency: in the past, when the US dollar peaked (for example, in 1985 and 2001), major international stock markets outperformed US markets. What’s more, a weakening greenback means that returns on foreign stocks are boosted when brought back stateside.

Which ETFs offer a good starting point?

The iShares Core MSCI EAFE ETF (IEFA; 0.07%) could be a solid choice if you’re looking for cheap, broad exposure to developed market stocks. The ETF is most heavily weighted in stocks from Japan, the UK, and France. If you want to add a bit more risk into the mix, then consider the Vanguard Total International Stock ETF (VXUS; 0.07%), which adds emerging market shares to the IEFA holdings.