Today's Guest: Jeff Marzina, executive vice president, Bill Few Associates Inc., North Hills www.billfewassociates.com, jmarzina@billfewassociates.com
Is this just a bounce or is the market's recent performance a sign of another long-term bull run? What forces are driving it? I believe it is too early to tell if this is the start of another bull market (the economy and earnings must continue to show improvement). Factors behind the market's recent move have been the slowly improving economic fundamentals and low interest rates, which have made other investments such as bonds less attractive.
Do you expect the major indices, the Dow, S&P and Nasdaq, to end the year higher than they are now? It will depend on how much the economy improves in the second half, but we believe the markets can end higher. However, we've more than likely seen the majority of the market's move already in the first half.
What sectors or investments look good for the next three to five years? In the short-term, we are favoring small-caps over large-caps. Historically, small-caps lead the market in the beginning of a bull market, and thus far this has been the case, and I feel they have a little further to run. As far as sectors are concerned, health care looks like a good place to be over the next 3 to 5 years. The sector is attractive on a valuation basis and is intriguing on the investment side when one considers possible breakthroughs in cancer, the human genome and attractive demographics.
Specific Names? William Blair Small Cap Growth Class N (WBSNX), Sentinel Small Company Class A (SAGWX), Eaton Vance Worldwide Health Sciences Class A (ETHSX).
What should be avoided? Although municipal bonds may be attractive for their tax-free treatment of interest and their current wide yield spread levels to Treasury bonds, investors should do their homework prior to purchasing them in a portfolio. The growing budget deficits of state and local governments have cast a gray cloud over the municipal bond market, a market whose safety has historically been thought of as second only to the Treasury market in terms of credit quality. Potential downgrades to the credit quality of state and local governments or any further negative press could result in falling prices and thinning trade volumes in the municipal market. This would hurt those investors who must sell a bond before its maturity date as well as the returns of municipal bond funds. Investors can go a long way in protecting themselves by sticking with bonds of higher credit ratings, better yet if they are insured, and by diversifying among different types of issuers and even insurers.