Foolish for investors to ignore both market positives and negatives, all-star investor Rich Bernstein says
While lawmakers go back to work on a second coronavirus relief package, Institutional Investor Hall of Famer Richard Bernstein is building strategies to cope with a more contentious market environment.
Bernstein, who has spent decades on Wall Street, expects the recovery to be jagged.
"Your portfolio has to be a little positioned in terms of matter and anti-matter," the Richard Bernstein Advisors CEO and CIO told CNBC's "Trading Nation" on Monday.
Bernstein believes it's foolish to ignore the positives and negatives in the market. Therefore, he's advocating a barbell approach to clients.
"Portfolios have to be balanced between the optimism that's associated with this historic monetary and fiscal stimulus while combined with the budding pessimism of Covid-19," Bernstein said.
The CNBC contributor prefers investing in consumer staples and health care as a safety play while also having exposure to economically sensitive groups such as energy and materials.
Bernstein is also becoming increasingly cognizant of the implications of the falling dollar, which is trading around two year lows. The greenback has dropped more than 6% over the past three months.
He sees it as a major negative wildcard for stocks because much of the last bull market was based on a strong dollar with low inflation.
"A prolonged period of dollar weakness would bring that all into question, and certainly shift the leadership within the market to something much more pro-inflation oriented," he said. "It would certainly upset a lot of investors, and make their previous portfolios probably wrong for that new environment if the dollar were to continue to weaken."
Due to the climbing risks, Bernstein is particularly attracted to gold. It comprises about 8% of his firm's multi-asset portfolios.
"People think of gold as being a hedge against things like inflation. But I think they've missed that gold historically has been a very good hedge against uncertainty," he added. "Now, it's got a little momentum tag to it."
On Monday, gold hit an all-time high of $1,941.90 on a nominal basis. But when adjusted for inflation, it was below the record level of $2,919.36 touched in January 1980.
"It's still worthwhile to have in a portfolio," Bernstein said. "The only thing that we know is certain over the next several years is that there's going to be more uncertainty."