As a record amount of money flows into the market, Meghan Shue of the Wilmington Trust sees a worrying trend.
Shue, who oversees nearly $ 136 billion in assets, is concerned about retail investors who are rapidly investing in stocks and cryptocurrencies that are high-risk and offer little, if any, benefit.
“It is a little bit to chase returns in the wrong areas. It is also a little bit to chase what has already happened,” the company’s head of investment strategy told CNBC’s “Trading Nation” on Friday. “One thing we must be careful about is not to extrapolate what we have seen in the past three months in the future.”
Shue’s warning came after Bank of America’s latest weekly report found that investor flows reached a record high. Its most recent data shows that $ 58 billion went to global equities.
“What we saw from the Bank of America data are record entries for major American companies in the technology sector,” said Shue, a CNBC contributor. “But less attention is being paid to areas that we think offer the best potential for future returns.”
Shue’s concerns also apply to speculative assets involved in this year’s Reddit-induced retail trading craze, pumping substandard stocks – as well as bitcoin. At the close of Friday, the cryptocurrency has increased about 65% since January 1 and 360% in the last 52 weeks.
“The money is going out of the picture and it seems more speculative than it has been in years,” Shue said in a special note to “Trading Nation”.
Instead of hitchhiking in areas that have already seen big bullish movements, Shue urges investors to focus on economically sensitive stocks, small businesses and emerging markets. Your investment schedule is 9 to 12 months.
“There is more room to go in terms of long-term recovery,” added Shue.
In the case of emerging markets, she says the group normally performs strongly in the early stages of global economic expansions.
“You have to have more exposure to cyclicals and value than last year,” she said.
A bull on the market, Shue believes the rollout of the Covid-19 vaccine will accelerate over the next two months and help repair the economy faster than widely anticipated.
But it is not ruling out a setback along the way due to the high levels of euphoria in the market. In that case, Shue recommends buying the dive and going small.
“In the US, the main trade is small cap US,” said Shue. “If you look at the first periods of expansion, you tend to see small caps in the US perform much better by a very large margin for a period longer than just a few months.”
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