Even market rallies appear to be part of a long-term secular bear market. However, it is important to remember that although economies still have not recovered by many measures, a surge in equity markets will precede any true economic recovery.
Credit is still tight, deleveraging of the private sector is now being followed by the necessary deleveraging of the public sector, but there are still some interesting investment opportunities for those with cash to deploy (i.e. those who don’t need to borrow to invest).
Commodities
As long as Don Coxe is still breathing, it seems there will always be at least one commodity bull out there. David Rosenberg is also signalling some support for this sector, which, under the mysteries of TSX sector allocations, includes both base metals and gold stocks—the latter of which is doing well for different reasons. Commodities represent the poor man’s play on emerging markets—for those who don’t want to stray too far from home.
Emerging markets
What portfolio would be complete without an allocation to the new darling of portfolio mixes? Despite the global slowdown, with the deleveraging of developed markets and curtailed export opportunities, local consumer demand and domestic investment may still allow emerging markets to outperform. However, bear in mind that results will differ by region, and that all countries in a given region are not homogenous, so a top down approach is warranted.
High dividend yielding stocks
With the TSX yield averaging 2.6%, and many individual stocks with far higher rates of dividend yield to support this average, stocks with a consistent history of delivering dividends compare very favourably to bonds in terms of income generation. In some cases the dividend yield will outpace the bond yield on comparable issues. After all, isn’t dividend yield supposed to be the reason to buy equities, setting aside the additional potential benefits from capital gains?
Corporate bonds
Okay so they’re not equities, but a nimble market timer could pick up the future benefits of corporate spread tightening and still be home in time for an equity market rally.
So is it time for equities? Why not. Equities may only be priced at average P/E ratios at present, but the most viable alternatives are out of reach for many investors.
Those with strong governance in place may wish to consider absolute return strategies. Investors with no need for liquidity may be in a position to look at real estate or infrastructure. But for those with a preference for simplicity, stocks for the long run may now be back in fashion.