Asset picks to consider

Stable US companies are good picks for one notable capital market researcher.

By Kim Peterson Jul 26, 2010 5:00PM
Stock Market © Getty ImagesI enjoyed the interview with Edward Chancellor at IndexUniverse.com. Chancellor is a capital market researcher on the asset allocation team at GMO, and has some good thoughts on investing in this current unstable investing climate.

Here are his stock picks and opinions on other assets:

U.S. Stocks. They're "moderately overvalued," Chancellor says. Expected returns will be lower than in the past few years, but they will still be positive. He says he looks for quality stocks with high returns relative to other stocks.

In particular, he likes companies that Warren Buffett might buy. Johnson & Johnson (JNJ), Pfizer (PFE), the ones trading at a price-to-earnings ratio of about 14 and the ones "that your grandmother had in her portfolio." Normally, they would trade at a premium to the market, he said, but now they're not.

European stocks. Chancellor is a fan of Nestle (NSRGY), Novartis (NVS) and Unilever (UNLNF). "Given the low current yields on government bonds, what’s nicer than to own a portfolio of equities that your grandparents might have owned and yet not have to pay a premium for them?" he asked.

Government bonds. Chancellor is skeptical of the possible manipulation that might come out of the 3% yield on U.S. Treasury notes. He's a bigger fan of 10-year Australian government bonds, which have a 5.2% yield, or New Zealand 10-years at 5.4%.

Gold. It's overpriced, he says, but it's not a bad deal. Professional investors have more tricks up their sleeve to protect against financial meltdown, so they don't need to buy gold. They can short government bonds, for example.

But retail investors can't easily do that, he adds, so for them, there's more of an argument for having gold in their portfolio. "I’m an occasional gold buyer and I’ve got nothing against gold, but at the current levels, it’s protecting you against financial Armageddon," he adds.

China. He's hesitant about China because it's not a normal market economy. The Chinese government is deeply involved in the market, and can pull strings on banks and other institutions. "I'm not prepared to put my money on China, though other people are," he adds.

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