Which areas of the stock market appear to offer the best risk/reward characteristics?
One area we favor is high-quality stocks in developed countries. By high-quality, we mean large-cap companies with global franchises, solid balance sheets, and consistent earnings and dividends. There are ETFs that provide access to this segment of the market. We also like emerging markets stocks, which provide direct exposure to the growth opportunity in emerging economies. There is a tendency to extrapolate the problems of the U.S. to the rest of the world, but in fact many foreign countries are experiencing dynamic growth and are in much better fiscal shape. Asia, ex-Japan is set to grow at 8.6% this year – the fastest pace in 20 years. The debt-laden G3 economies of the U.S., Europe, and Japan are expected to grow 1% in 2010. Emerging markets comprise 40% of global output. For high-income equities, we prefer energy MLPs to REITs. Energy MLP indexes yield 200% basis points more than REIT indexes, and the fundamentals of energy MLPs are generally better. Why have any exposure to
