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As a record amount of money circulates in the market, Meghan Shue of Wilmington Trust sees a disturbing trend.
Shue, who oversees nearly $ 136 billion in assets, is concerned about retail investors rushing into stocks and cryptocurrencies that are high risk and offer little or no benefits.
“It’s a bit of chasing returns in the wrong areas. It’s also a bit of chasing what has already happened,” the company’s chief investment officer told Trading Nation on Friday. “. “One thing we have to be careful of is not to extrapolate what we have seen over the past three months into the future.”
Shue’s warning comes after Bank of America’s latest weekly report found investor inflows hit an all-time high. Its latest data shows that $ 58 billion has been invested in global equities.
“What we’ve seen from this Bank of America data is record entries in US large caps, in the tech sector,” said Shue, a CNBC contributor. “But less attention is being paid to areas that we believe offer better potential for future returns.”
Shue’s concerns also apply to speculative assets involved in the Reddit-induced retail mania this year, which is inflating substandard stocks – as well as bitcoin. As of Friday’s close, the cryptocurrency has risen by around 65% since January 1 and 360% in the past 52 weeks.
“The money is coming out of the sidelines and seems more speculative than it has been in years,” Shue said in a special note to “Trading Nation”.
Rather than relying on areas that have already seen strong gains, Shue urges investors to target economically sensitive stocks, small caps and emerging markets. Its investment schedule is 9 to 12 months.
“There is more room to do in terms of long-term catching-up,” added Shue.
In the case of emerging markets, she argues that the group is generally very successful in the early stages of global economic expansion.
“You need to be more exposed to cyclics and value than last year,” she said.
A bull market, Shue believes the deployment of the Covid-19 vaccine will accelerate over the next two months and help fix the economy faster than expected.
But it doesn’t rule out a pullback along the way due to high levels of market euphoria. In this case, Shue recommends buying the dip and going small.
“In the United States, the main business is American small cap,” said Shue. “If you look at the early spells of expansion, you tend to see US small caps outperforming by quite a large margin for a period longer than a few months.”
Warning
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