(June 12, 2012) — Investors in the United States are increasingly seeking emerging markets, when in fact they should focus on what’s right in front of them, according to one asset manager.
Richard Bernstein, the CEO and CIO of Richard Bernstein Advisors, says that US assets are currently undervalued relative to non-US assets of both developed and emerging nations. According to Bernstein, the US Treasury sector is the only diversifying asset class in the market.
In a paper titled “Positioning Portfolios for the Long-Term,” Bernstein writes: “When investors talk about growth, they often confuse economic growth and stock market returns. What they really care about is stock market returns, and the two do not have to go together…Over the last five years, the corporate sector in the United States has shared in a huge part of the nation’s economic growth. Corporate profits as a percentage of US GDP are about the largest they have ever been.”
The author concludes that US stocks and Treasury bonds are strong investments for the long-term because US assets are overlooked and Treasuries provide the diversification that no other asset class can offer.
Furthermore, Bernstein urges investors to make a distinction between national economic growth and company valuation. “These two measures are not the same. Strong economic growth does not necessarily produce strong stock returns, and stock returns are what investors are seeking. US assets are the right investments for a long-term portfolio. US stocks are undervalued, and US Treasuries are the only diversifying asset,” he writes.
In other words, investors must stray away from a focus on economic forecasts to a comparison of countries in terms of their growth rates. “If China’s growth rate goes from 9 percent to 5 percent, the US growth rate goes from 1 percent to 2 percent, and neither change in growth is already discounted in asset values, then U.S. assets are going to outperform Chinese assets,” Bernstein concludes.