As a record amount of money flows into the market, Meghan Shue of Wilmington Trust sees a worrying trend.
Shue, which oversees nearly $ 136 billion in assets, is concerned that retail investors in stocks and cryptocurrencies are running high-risk and offering few benefits – if any.
“It’s a bit of a chase for returns in the wrong areas. It’s also a bit of a chase to what’s already happened,” the firm’s investment strategy told CNBC’s “Trading Nation” on Friday. “One thing we need to watch out for is not to extrapolate what we’ve seen over the past three months in the future.”
Shue’s warning comes after Bank of America’s latest weekly report found that investor inflows had peaked. The latest data shows that $ 58 billion in global equities.
“What we have seen from the Bank of America data is record flow to the US large-scale capitalization in the technology sector,” said Shue, a CNBC contributor. “But less attention is being paid to areas that we believe offer better potential for future returns.”
Shue’s concern also applies to speculative assets involved in the Reddit – induced retail mania that raises lower quality stocks, as well as bitcoin. As of Friday’s close, the cryptocurrency has been up about 65% since January 1 and 360% over the past 52 weeks.
“Money comes from the sidelines and looks more speculative than in years,” Shue said in a special note to ‘Trading Nation’.
Instead of retreating to areas that have already moved sharply, Shue urges investors to target economically sensitive stocks, small companies and emerging markets. Her investment timeline is 9 to 12 months.
“There’s more room to catch up in terms of long-term catch-up work,” Shue added.
In the case of emerging markets, she argues that the group usually performs strongly in the early stages of global economic expansion.
“You need to be more exposed to cyclics and value than last year,” she said.
A market bull, Shue believes that the introduction of the Covid-19 vaccine will accelerate over the next few months and help the economy recover faster than generally expected.
But she does not rule out a setback along the way due to the high levels of market euphoria. In that case, Shue recommends buying the dip and getting small.
“In the US, US retail investment is the best trade,” Shue said. “If you look at early periods of expansion, you tend to see that American smallholders perform better for a longer period than just a few months with a fairly large margin.”
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