Equity markets have had a good start to the year, with the S & P 500 benchmark crossing 5,000 earlier this month and Europe’s Stoxx 600 index hitting an all-time high . The benchmark 10-year Treasury yield , meanwhile, is hovering around 4% after topping 5% last October for the first time in 16 years. Looking ahead, market consensus sees “a perfect combination of bullish factors,” according to Wells Fargo Investment Institute’s Paul Christopher — but he’s not so sure. “We expect sticky inflation, a slowing economy, fading Treasury-provided liquidity and [more] aggressive policy easing than the equity market consensus,” Christopher, head of investment strategy at the institute, told CNBC Pro earlier this month. As investors ponder how — and where — to invest in this uncertain climate, CNBC Pro asked market experts where they recommend allocating $100,000. Moving away from 60/40 Kevin Teng, CEO of Wrise Wealth Management Singapore, which serves ultra-high-net-worth individuals across Asia, the Middle East and Europe, advised investors to reconsider the traditional portfolio allocation of 60% to equities and 40% to bonds. “Investors need to understand what kind of market we are in when allocating funds because cycles change, and they change very fast,” he told CNBC Pro “Investors with a 60/40 portfolio allocation would have suffered quite a lot because of how high long-term bond rates have been. It is also not ideal in an environment when rates cuts are expected because the returns from the overall portfolio would not be as strong.” The market is expecting the U.S. Federal Reserve to cut interest rates this year, although the timing of such cuts remains uncertain. The CME FedWatch tool suggests the first reduction is expected to happen as early as June. For Teng, allocating around 80% to equities , 15% to bonds and 5% to cash holdings should yield “better investment returns” than the traditional portfolio split. He recommended investing: $40,000 in U.S-listed equities like Microsoft or exchange-traded funds (ETFs); $30,000 in stocks that the investor has a “home bias” in; $10,000 in short-term fixed income through a bond fund or an ETF with exposure to bonds; $10,000 in cash, given that it is “super liquid” and “will continue to give more attractive returns than bonds” as well as T-bills; $10,000 to emerging markets, such as Asia. “Asia … is becoming more important and I think we are going to see more capital come over not, just from the U.S. but also Europe as more family offices — which have traditionally allocated to the U.S. — look at it,” the wealth manager, who was previously an executive director of private wealth management at Morgan Stanley, said. Investing around market runs Christopher suggested that investors with a mid-range risk appetite, seeking capital preservation and growth, balance their portfolio by “putting cash to work in short-term fixed income and U.S. large-cap equities.” He also favors commodities, along with the industrials, materials, energy and healthcare sectors. His comments came with a dose of caution about the recent stock market rally, however. “The further [the S & P 500 ] runs the more serious the question of whether future earnings are completely priced,” he said. “The consensus believes that profitability is not yet completely priced, but no one really knows where that point is — or whether we’ve overrun fair pricing.” Cash and fixed income Rickie Jia, head of discretionary portfolio management multi-asset and management Asia at Pictet Wealth Management, also strikes a note of caution on U.S. stocks, saying the market looks to have “a lot of risks” right now. “By investing purely in cash and fixed income, you can already get a decent return,” Jia said. “So for example, today, if you allocate to a global investment grade, you get close to 6% yield alone. And with global central banks cutting rates, fixed income will likely benefit from capital gains as well because of the duration.” Within fixed income, Jia likes government bonds from developed countries and investment-grade bonds from “reputable firms,” which offer “quality” and “longer-term growth” potential. On equities, he is underweight U.S. stocks given their “stretched valuations” but remains constructive on European, Japanese and Asian counters. Jia also stressed the importance of investors’ allocating to asset classes depending on their risk appetite and life stage. Investors nearing retirement, for instance, should have a more conservative portfolio mix of 80% in fixed income and 20% in equities, according to Jia. Conversely, he said younger investors growing their capital should look to invest 70- 75% in equities, 20- 25% in fixed income, and potentially a small allocation to commodities. Go for gold Beyond the traditional sectors, the pros also see promise in gold, as demand remains high and central banks add more of the precious metal to their reserves . “We are advocating for gold [because] you want to buy tangible assets,” Wrise Group’s Teng said, adding that gold offers long-term returns at a time of still-high inflation levels. Spot gold prices are up around 11% over the last 12 months. Pictet’s Jia agrees, saying that allocating a small percentage to gold would be a good strategy. “We think it will continue to help make the portfolio more defensive, and hedge against inflation,” he said.
