BYRON WIEN: Here's What My 2014 Portfolio Looks Like
"While the total return for the S&P 500 was more than 16% in 2012 and has been 23% so far in 2013, I still believe there is further upside ahead, but a temporary correction from an overbought condition could occur at any time," wrote Wien this week.
This is according to a piece he posted called 'A Portfolio for 2014', which looks at the US and international economies and where he expects them to go over the coming year.
Here's a brief summary of his outlook for the U.S.:
...I expect modest earnings increases and some multiple expansion from present levels, but I doubt that we will have another year of double-digit increases in the market indexes. My view is that the industrialized nations are suffering from a lack of demand sufficient to absorb the abundant supply of quality goods produced by many countries across the world. As a result unemployment is likely to remain high and capital spending, ordinarily contributing importantly to growth at this stage in the cycle, will remain low. Operating rates in the U.S. are below 79%; capital spending picks up when they are in the mid-80%-90% range. Consumer sentiment is likely to remain unenthusiastic in this environment, preventing retail sales from reaching a robust level. A recent article in Barron's quoting several academic studies pointed out that demographic factors (aging populations) and only slight increases in productivity will hold U.S. growth well below the 3½% of the post-World War II period, perhaps as low as 2%. This will have both social and political implications, particularly with potentially growing entitlement expenditures putting pressure on the budget deficit.
Internationally, Europe will grow modestly. It has slowly come out of its 2012 recession but growth will be "fragile". China's GDP can be expected to grow at over 7%. Japan will see growth between 1 to 2% and will finally start becoming inflationary thanks to Abenomics.
Here's how his portfolio looks in the coming year:
- 10% position in high-quality global multinationals.
- 10% position in small and medium capitalization American companies.
- 10% position in European stocks, as he banks on a modest recovery.
- 5% position in Japan.
- 10% position in emerging markets: "Valuations are very reasonable, profits are growing and I think we will see better performance in 2014."
- 10% position in hedge funds: "I have seen them provide strong risk-adjusted returns over a full market cycle."
- 10% position in private equity: "There will be a number of high-return opportunities in the years ahead as companies sell off divisions to rationalize their strategic operating structure."
- 10% position in real estate.
- 5% position in gold: "Although inflation remains tame, the price of gold reaches $1,900 an ounce as central bankers everywhere continue to debase their currencies and the financial markets prove treacherous"
- 5% position in natural resources and agricultural commodities.
- 15% position in high yield securities: "These are not conventional high yield bonds where yields have dropped sharply over the past two years, but mortgages, leveraged loans and mezzanine financing where attractive yields are available with a minimum of risk."
- No position in U.S. Treasuries: "I expect yields to rise on these notes and bonds over the next year."
Read Wien's whole commentary at Blackstone.com.