Emerging markets and Europe is the place to be for investors. They should play this call through broad-based index ETFs in emerging markets, said Hank Smith, chief investment officer at Haverford Trust.
Emerging markets are the most underperforming area in what has been a bull run in equities globally and they will surely catch up, Hank observed. Asked if he thought Treasuries were overvalued as the majority (57 percent) of market participants surveyed believes Fed tapering has been already priced in and a yield of 3 percent would make 10-year Treasuries attractive, Hank chose to disagree.
Bonds are still an overvalued asset class and the markets are nowhere close to what one could consider a normalized environment. A 10-year yield of 1.7 percent is an emergency level, but a 10-year today at 3 percent is on the way to normal environment and not normal. Over the next 18-24 months, a 10-year yield that settles in at 4/4.5 percent is correct. Today’s buyer will be sadly disappointed in terms of a decline in the value of what they buy today, he noted.
One of Hank’s picks has been retailer T J Maxx. The stock is trading near its record high and may no longer look as attractive as before. Investors have cheered the strong second quarter results and increased forecasts. The P/E ratio is now a full standard deviation higher than the benchmark index. Investors who are seeking exposure in discount retailers may consider Ross Stores since its price is inline with the average.
Haverford, however, thought otherwise. Hank said the fund just added more T J Maxx in their portfolio at current prices. The stock looks attractive at current valuations though he recognizes the fact that the stock has moved a little higher than the broad market in recent trades.
It is still cheaper than another rival discount retailer, i.e. Costco, which is a terrific company. The point to note is that T J Maxx is one of the best managed retailers with a formula for success that can continue consistently providing earnings-per-share growth and dividend growth regardless of the environment, whether it’s a slow growth, no growth or above average GDP growth, he concluded.
Disclosure: No holdings