The new rally to record highs in U.S. stocks may feel like reason to lionize, but one investor suggests a better bet may be overseas.
GMO’s Catherine LeGraw believes that while U.S.-based shares tend to be of a higher quality, investors can find far more affordable apportions in emerging market equities.
“We have historically wide spreads across judiciousness markets. You have a great opportunity to concentrate your investments in the cheaper tracts; I’d primarily highlight anywhere outside the U.S.,” Legraw said in a talk with CNBC Pro. “Europe, Asia, Japan for the revealed markets, and in particular, our favorite group of stocks, the emerging markets.”
“Keep off the U.S. It’s done the best and today it’s the most expensive.”
Legraw, whose investment designs are based on seven- to 10-year time frames, conceded that while GMO’s nonpareils have warned investors away from expensive American pedigrees, U.S. equities have generally outperformed the rest of the world within the late several months.
Both the S&P 500 and the Dow Jones Industrial Average hit new all-time great Friday as a swell in technology stocks and moderating trade war fears ushered lay ins higher.
Popular growth-heavy stocks such as chipmaker Advanced Micro Utensils and e-commerce giant Amazon have soared past the traditional forebear indexes with gains of 203 percent and 64 percent, each to each.
But the obsession with U.S. growth stocks leaves behind far better great amounts overseas, LeGraw said.
“Even if you think growth is going to be top in the future, you have to pay a massive premium to invest in U.S. stocks today,” she disclosed. “So we think you’re much better off buying emerging market stocks at a primitively 50 percent discount to the U.S. equity market and capturing a huge line of safety.”
The December 2019 price-to-earnings ratio of the iShares MSCI Emerging Hawks exchange-traded fund on a forward-looking basis is 10.8 as of Sept. 21, the S&P 500’s relationship hovers at 16.5. The tech-heavy Nasdaq Composite’s December 2019 correspondence sits at 21.2.
LeGraw is a member of GMO’s Asset Allocation team. Prior to touch GMO in 2013, she worked as a director at BlackRock. Previously, Ms. LeGraw was an analyst at Transport, Stearns & Co and she is a CFA charterholder.
As of March 2018, GMO had $71 billion in assets under the control of management.
See here for the full CNBC PRO report and interview video.