While emerging market investing is a universally popular theme this year, one advisor is going full-bore and advising clients to put more than half their stock portfolios abroad.
At an outlook conference in New York earlier this week, Hartford Financial executives said they are advising clients to put as much as 54 percent of their stock allocation to growing economies outside the United States.
"We're in the second inning, not the ninth inning, of this new order here," said Bob Froelich, senior managing director at The Hartford Mutual Funds. "It's a game-changer and that's where you're really going to make money in 2010, in those emerging markets."
Stock market gains in the US of about 3 percent in 2010 have outperformed foreign markets, which are relatively flat this year, but the momentum is expected to increase through the year for developing countries.
In terms of asset allocation for 2010, Froelich is recommending 60 percent for stocks, with 60 percent of that weighted toward international companies and 90 percent of that in emerging markets.
The remaining portfolio allocation is 15 percent to bonds, 5 percent cash and 20 percent alternatives, including 10 percent of that total portfolio in commodities, which in itself is something of an emerging markets growth play.
One of the primary reasons the play is becoming so popular is the development of the middle class in countries such as Brazil, India and China.
"The growth in the middle class is the next leg in the emerging markets story out there," said Joe Portera, portfolio manager for The Hartford Strategic Income Fund.
As the middle class rises it will create demand which will then lead to greater consumption ad stronger engagement with developed economies. The process is likely to play out over an extended period.
"I do think this is a long-term secular theme," said Karen Grimes, portfolio manager with The Hartford Value Fund. "You are going to see a rising standard of living. The middle class is being created. That will take years to happen."
While Grimes focused mostly on foreign stocks in these markets, multinationals with global focus also are part of the group.
Grimes specifically mentioned Nestle as a company with large exposure to emerging markets as well as the global economy that will provide value to investors as the investment theme plays itself out.
Fixed-income investors also can find value overseas as the US faces an environment where interest rates are likely to rise as the economy recovers.
"One way to protect yourself against rising interest rates in the US is to go outside the US," said Portera, who cautioned that investing in euro-zone countries could be difficult as debt problems play out in Greece and several other nations.
"No matter what scenario we come up with, the euro is in trouble," he said. "We're very concerned about credit in general in the euro zone."
As for the relationship the US has with China, which is the world's largest buyer of Treasurys, Portera said it is "like a Catholic marriage. It's pretty hard to get a divorce right now."
He added that investors would do well to look at how large companies are building overseas operations and take cues from there.
"If those large multinationals are the smart money, then you really want to follow the smart money," he said.