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For anyone daring to take the road less traveled in their retirement portfolio, here are the handful of investments for 2021 that Wall Street doesn’t want.
No, really. These are the ones the big money crowd actually hate.
They are, in no particular order, “cash” (or Treasury bills), bonds, Japanese stocks, British stocks, real-estate investment trusts, energy stocks and “consumer staples” stocks, which means companies that make everyday essentials like painkillers or detergent.
These are the seven asset classes that the world’s top investment managers are shunning as we stagger out of 2020 and stagger into 2021.
That’s according to the best guide to what these people are thinking, the global fund management survey conducted monthly by Bank of America BAC, +7.54% (which inherited the role from Merrill Lynch).
The seven named investments are those which, in the December survey, fund managers said they were consciously avoiding. In all seven cases, they owned less of the investment in their funds than their benchmarks would ordinarily recommend.
It’s usual in the media to report on the things that money managers and Wall Street strategists like and recommend. It sounds like the most sensible investment recommendations—until you realize that if the big money crowd are already saying they are crazy about (say) soybean futures, they’ve probably already loaded up the funds with soybean futures—driving up the price.
Hence the contrarian’s interest in the assets that money managers like the least.
For these things, investment demand has been slack, prices are generally low, and the bar of expectations even lower. As just as it can be hard to beat high expectations, it is generally much easier to beat low expectations.
Years ago I ran a similar experiment year after year for The Wall Street Journal. I found the U.S. stocks most popular with Wall Street analysts tended to be a worse investment than the index—and a worse investment than the stocks that analysts liked the least.
The seven investments currently out of favor are all very easily owned by any U.S. investor through exchange-traded funds. For example:
Treasury bills GBIL,
Global bonds BNDW, -0.33%
Global energy stocks IXC, +3.58%
Global consumer staple stocks KXI, +0.25%
Global REITs REET, +1.01%
Japan FLJP, +1.28%
Great Britain FLGB, +3.04%
Most of these funds charge very low fees. So even though the global energy and global consumer staple funds are reasonably expensive, at 0.46% each, the overall level averages out at 0.2%. (You can lower that still further if you choose U.S. stock ETFs instead of global ones, which tend to charge more).
It’s funny how often money managers seem to be the most bullish just at the times when, in hindsight, one wished one had held a lot of cash—and they tend to hold the most cash just around the time when, in hindsight, one wished one had been invested in stocks up to the hilt.
They’ve been underinvested in bonds during a 20-year bull market. They were bullish on emerging markets a decade ago (oops) and cautious on Japan (also oops). At the end of 2018, after global stock markets had plunged, they were underinvested in stocks for the year ahead (oops again). And a year ago, after global markets had boomed, they were more bullish on stocks—a position that for several months was a very big oops indeed (and cost them the opportunity to buy lot of stocks on sale in March).
Bank of America says in its latest report that money managers are already so heavily invested going into 2021 that their cash levels are down to the lowest since 2013, and are at a point where it triggers warning signs. They are most overinvested in emerging markets, U.S. and European stocks, and economic rebound sectors like industrials, commodities (excluding energy) and discretionary consumer spending.
Incidentally, it’s probably not fair because of COVID, but a portfolio of their top picks for 2020 produced a total return for the year of just under 12%.
A simple global stock index, as tracked by the Vanguard Total World Stock exchange-traded fund VT, +1.29% ? Try 16.6%.
Oops.
And a balanced portfolio of 60% world stocks VT, +1.29%, 20% global regular bonds BNDW, -0.33% and 20% inflation-protected bonds SCHP, -0.40% would have left you up 13.4%.
You can see why they pay them the big bucks.
