Most agree that we have witnessed the end of a massive, three-decade bull market in bonds.
Some are also skeptical of the potential for returns in the stock market in the years ahead, given common valuation multiples that are currently above historical averages.
We asked a few of our favorite traders, strategists, and economists for their best investment ideas for the next 10 years. Here's what they told us:
1. Greek GDP warrants"These instruments are a bi-product of Greek debt restructuring and will pay a cent a year if and when Greek GDP hits certain thresholds. They won't pay those cents for several years yet because Greek GDP is still some way from the triggers, so they are suited to the patient professional investor with a long term horizon. But in the meantime default risk is tiny; it's hard to default when you only have to pay in good times."
—Gabriel Sterne, fixed income economist at Exotix
2. Qatari stocks"On a ten year view I'd invest in the Tehran stock exchange, but given its difficult for US citizens in particular to do so, I'd pick the Doha Stock Market in Qatar. Qatar is a country with a GDP per citizen of around $1m that will be investing aggressively into World Cup 2022 to transform itself into a destination for millions of tourists. The country's stock exchange is being promoted to the main MSCI Emerging Markets index this May and trades at under 10x earnings (versus a historic level of 15-20x) with a 5% dividend yield and likely EPS growth of 10%, backed by the government who are extremely shareholder friendly given the locals own the majority of shares. The currency is pegged to the US dollar with appreciation potential. If/when US rates start to rise, net interest margins of local banks will expand dramatically. An easy way to invest is the closed-end Qatar Investment Fund listed in London, which gives you index exposure at a 10% discount to NAV. This should easily triple over 10 years in dollar terms with minimal downside risk."
—Emad Mostaque, strategist at NOAH Capital Markets
3. Chinese consumer sector"No brainer."
—Jim O'Neill, former chairman of Goldman Sachs Asset Management
4. Tier-2 residential real estate"There is a great deal of room to rebalance income and output domestically from tier-1 cities that do not have the productivity to justify their high prices and incomes into tier-2 cities. Cities that are competitive may not be the outright cheapest: they are cheaper than tier-1 cities, but still have the fixed capital and stability to support enterprise."
—Matt Busigin, editor and principal author of Macrofugue Analytics
5. Short volatility"I'd choose ZIV, an ETN that tracks short exposure to medium-term VIX futures. The reason for this choice is that the volatility risk premium is one of the best and most persistent sources of risk-adjusted returns, and selling the middle of the VIX curve has outperformed a lot of related volatility strategies."
—Jared Woodard, principal of Condor Options
6. Farmland"Ten years is a long time in investments (this time 10 years ago, Eastman-Kodak was a Dow component) so a ten-year single lock-in investment is going to have to meet some criteria: (1) unlikely to be disrupted by technology; (2) meets a need somewhere towards the bottom of Maslow's pyramid; (3) produces a yield; and (4) expectation of capital gain. With this in mind, my ten-year lock-in investment would be agricultural land. The customer base is growing. The customers have little choice about buying the production from agricultural land. It produces a yield. Supply is limited (full disclosure — I own a farm)."
—Lorcan Roche Kelly, strategist at Agenda Research
7. Mortgages"You are getting paid a premium for risk (extension and prepayment) that has largely been removed. And if we are entering a rising rate environment, you get to reinvest amortizing principal in higher coupons. Rates would have to fall significantly to accelerate prepayments. Plus supply will be shrinking acting as a natural cap on yields. Banks still have tepid loan demand and rising deposits. Buying Fed induced market pukes has been very profitable."
— Vince Foster, interest rate strategist
8. International pressure pumping"The one investment I think I'd make to hold over the next 10 years would be in oil services, particularly focusing on international pressure pumping. While crude oil continues to ratchet upwards in price and get more and more expensive to find, natural gas through hydraulic fracturing seems to get easier with the boundaries for ever wider-scale production halted by the factionalism and arbitrary hypocrisy of government controls, particularly in the shale rich areas of South America. Those barriers must fall, given the price differential that continues to expand between crude and gas; and the international services group will be the most likely long-term benefactors — think Schlumberger (SLB) and Baker-Hughes (BHI)."
—Dan Dicker, president of MercBloc
9. Southeast Asia"On the horizon of the next ten years I would probably be looking at Southeast Asia, very favorable demographics and growth potential, and property in the U.S."
—Michael McDonough, chief economist at Bloomberg LP
10. Real assets"In particular, residential housing looks like an attractive long term bet, especially in places where big adjustments have taken place – or there hasn’t been a bubble in the first place. Baltics in Europe is one good spot with favorable macroeconomic environment amidst stimulative external conditions. Latvia joining the euro zone this year, and Lithuania likely from 2015, the countries will likely catch up with Estonia where home prices are already rising at a double digit pace."
—Aurelija Augulyte, macro strategist at Nordea
11. Top 100 S&P 500 market cap stocks"And sunscreen."
—David Bianco, chief U.S. equity strategist at Deutsche Bank
12. Something with yield"Phew, it’s going to be low return world. Something with as solid yield as possible in a decent currency. I own a yield play in Singapore dollars, as an example. Or, if you can find it, rural land with a yield (so probably counts out US farms)."
—Gerard Minack, principal of Minack Advisors
13. Base metal and rare earth mining companies"If I could own something for the next 10 years, it’d have to be base metal and rare earth mining companies. It’s an area that has not matched in any sense the uplift in global equities. China is key. Any dips in copper prices have been bought by the Chinese as they add to inventories. Once these start to run out and when we see a proper return to growth here in Europe and the US, I would expect to see these very much in demand. On the rare earth metals, the fact that China is moving to tighten control on this industry. Their uses in defence and telecommunications, particularly make them a relevant investment for the future."
—Brenda Kelly, chief market strategist at IG Markets
14. U.S. small cap stocks—Rich Bernstein, founder of Richard Bernstein Advisors
15. Urban core real estate in "Rust Belt" cities"Not only do I think this is the best investment out there on a risk-adjusted basis, I don't think it's particularly close. White flight and the de-industrialization of our cities is a trend that's over. The white population of Detroit shrank by 96% from 1950-2010. Meanwhile, while the outer suburbs of those cities continues to shrink, the inner cores are getting younger and more educated. While house prices per square foot are north of $1,000 in parts of San Francisco and New York, you can buy into most of these cities for under $100/square foot. It's only a matter of time before we start talking about places like Buffalo and Pittsburgh and Milwaukee as the Berlins and Brooklyns for the next generation. Not all of these cities will be home runs, and it'd be preferable to live in one yourself if you're going to invest, but the list of options is very long: Milwaukee, Chicago, Indianapolis, Cleveland, Cincinnati, Detroit, Pittsburgh, Buffalo, Hartford, Providence, Kansas City, St. Louis, Memphis, and Birmingham, for starters. I'd focus on ones with pro sports teams, strong universities, and busier airports."
—Conor Sen, portfolio manager at New River Investments
16. Long stocks, short bonds—Joe LaVorgna, chief U.S. economist at Deutsche Bank
17. International health care"For the next 10 years: healthcare, pharmaceutical, bio-pharma and bio-tech stocks with significant markets exposure outside the US. Investment case for these is made by the expectation that once Emerging and Middle-Income economies' middle and upper-middle classes satisfy their demand for leather couches and SUVs, their demand will refocus on their health and life expectancy. This demand acceleration will likely coincide with continued build up of health threats to the emerging markets from internal pollution and environmental degradation, and accelerating ageing and health concerns in the advanced economies. Timing for the demand pressures materialisation is a lot longer than 10 years, but investment window for pricing these risks forward is closing fast. The next 'perfect storm' in global economies is likely to be ageing-related one."
—Constantin Gurdgiev, adjunct professor of finance at Trinity College, Dublin, and University College, Dublin
18. Yourself"In yourself, from both a physical and educational perspective."
—Sam Stovall, chief equity strategist at S&P Capital IQ
19. Short commodities"For the next 10 years, I like shorting commodities. I expect little inflation—and more likely, deflation—so changes in real and nominal commodity prices will be about the same. The attached chart shows that real commodity prices have fallen steadily since the mid-1800s, despite huge growth in commodity demand from the American Industrial Revolution after the Civil War, forced industrialization of Japan in the late 1800s, mass-produced autos starting in the 1920s, etc. Commodity price spikes caused by demand leaps in the Civil War and World Wars I and II were soon reversed as were price leaps due to the oil supply constraints in the 1970s. Many look for jumping commodity prices in future years since there are limited amounts of copper in the earth’s crust, two billion more mouths to feed, upgrading of diets and rising consumer spending in developing countries, etc. The reality, however, is that human ingenuity always beats threatened shortages. Coke made from coal saved the Industrial Revolution, which was threatened by a shortage of hardwood trees to make charcoal to smelt iron. In the early 1800s, overhunting had decimated the world’s whale population to the point that the lights would go out from a lack of whale oil, many feared. Then in 1858, Edwin Drake drilled a crude oil well in Titusville, Pa., and kerosene lamps rode to the rescue. I can recall when serious economists forecast the end of telecommunications growth because of shortages of copper for wires. Then came fiber optics."
—Gary Shilling, economist
20. The S&P 500"I hate to be unimaginative here, but 10 years is a long time to hold a very specific investment. Sure the energy renaissance has a long time horizon, but what will it look like in 3 years much less 10? Who can say? I’d say the S&P 500. I have a chart below that is my favorite chart of all time. I created it over a decade ago and it hasn’t failed me yet. It simply shows the trailing PE and the next 10 years price return for the S&P 500. Below is the shortened version of the one I have going back many decades. It’s amazing right? Future Nobel Prize, baby! AMIRIGHT?! Take that Shiller—this one actually WORKS. But I digress… Anyway, right now it shows the S&P 500 will generate about an 8% price return on average over the next 10 years. Add a 2% dividend and you get 10%. A 10% annualized total return is not a bad deal compared to bonds, commodities, or cash for the next 10 years. I'll take it."
—Jeff Kleintop, chief market strategist at LPL Financial
21. Energy-intensive U.S. manufacturing"Energy-intensive manufacturing in the USA, generic biopharmaceutical products and any company globally that will be able to lever off the Chinese consumer."
—David Rosenberg, chief economist and strategist at Gluskin Sheff + Associates and author of "Breakfast with Dave"
22. Financial planning"As it turns out, that is an easy question: Our own business. I have been plowing money into our own asset management business. This is not a reflection on the price of stocks or bonds, but more on the state of the financial industry. Wall Street is very good at serving its own interests, but terrible at serving its clients. This has created a huge opportunity or anyone who wants to put their clients first. I expect we have a 5 year ramp up before the rest of Wall Street starts to notice something is amiss. I believe there are 4 areas ripe for disruption: 1) Full service Financial Planning/Asset management, 2) Retirement Planning, 3) low cost asset management, 4) RIA Advisory services to members of the industry. We are in the midst of a very significant set of changes; The financial services industry is likely to look very different 10 years hence."
—Barry Ritholtz, chief investment officer at Ritholtz Wealth Management
23. Global stocks"10 years is a long time. I am partial to Asian growth and was initially going to offer EWH or EWS but they both have small populations. The Indonesian ETFs give exposure to a large population with trading relationships throughout Asia but also seems too concentrated. I would offer up Vanguard's Total World Stock Index ETF (VT) as a decent alternative. Though not having nearly enough exposure to emerging markets, it should offer downside protection in a big sell-off and inflation + performance on the upside."
—Daniel A. Baffoe, Treasury sales/strategist at large
24. Investment discipline"Practice Investment discipline — conduct quarterly portfolio reviews, practice diversification midst, rotation, use losses to offset tax liabilities from profit taking — back to basics. Never forget the quote Mark Twain is credited for: 'History may not repeat itself but it often rhymes.'"
—John Stoltzfus, chief market strategist at Oppenheimer
25. Value stocks"GVAL (Cambria Global Value ETF) buys equities in the 10 cheapest countries as determined by long-term valuation metrics like the Shiller CAPE ratio."
—Meb Faber, chief investment officer and portfolio manager at Cambria Investment Management
26. Intellectual, social, physical, and emotional capital"Giving stocks picks and the like is not the business of Abnormal Returns I have written a lot over the past couple of years talking about the advances in low-cost investing. So in that regard investors would do well to take advantage of this 'free lunch.' So instead of spending countless hours trying to tease out the next hot stock why not invest in yourself. I know that sounds like a bit of new age cliche, but hear me out. The best investment you can make with your marginal dollar (or hour) is in your intellectual, social, physical and emotional capital. Most investment advice is about staying rich. The key to a richer, fuller life is maximizing your potential. For the vast majority of people, time spent in front of the computer searching for the next Twitter or Tesla isn't it."
—Tadas Viskanta, founder and editor of Abnormal Returns
27. Water"The demand from frontier and emerging economies will collide with inefficient and archaic storage and distribution systems in the developed world. Climate change is altering the natural supply areas."
—Kevin Ferry, chief market strategist at Cronus Futures Management
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