What a 12 months. What now? Half One.

Pittsburgh Quarterly asked the region’s top experts to answer these questions: What market sectors do you like right now as the US economy slowly bounces back from the pandemic? How do you position customer portfolios? We thank them for giving readers their following answers.

Win Smathers, Shorebridge Wealth Management

We manage diversified portfolios with mutual funds and ETFs at their core that offer broad exposure to almost all sectors, and for larger accounts we will additionally own individual stocks of our best ideas. Our process leads us to great companies that benefit from long-term secular trends. Because of this, we’re not going to reposition a lot this year, but instead keep the positions we’ve enjoyed all along. We will own these great companies in good times and bad because of their attractive growth attributes. We want to own the companies that make life better and more productive. Our ideas typically focus on information technology, financial technology, biotechnology, and healthcare, but we will own innovators in other sectors when the favorable trends can be seen. In the post-pandemic recovery in particular, we expect a rising tide to lift almost all ships as stocks should benefit from the Goldilocks environment with incentives, low rates and pent-up demand for goods and services. Since the November elections, we’ve seen a slight shift from the names popular during the lockdown to some of the cheaper, more valuable ideas. We would expect the economic sectors most affected during the pandemic (e.g. travel-related, entertainment) to be the biggest relative beneficiaries of the “return to normal” trade. Slowly rising long-term interest rates with a steeper yield curve will benefit financial stocks like banks and insurance companies. And most commodity producers and industrial companies should get a boost from infrastructure spending and a faster growing economy.

Jay F. Mastilak, the Mastilak Wealth Management Group at Stifel

We take a strategic, diverse and diversified approach to balance our clients’ risk tolerance and financial goals. We review and adapt to the current market environment.

Wherever it is appropriate for the customer, we value investments in equities at home and abroad. On the fixed-interest side, in this low-interest environment, we are concentrating on short-term maturities and variable-interest instruments. For certain investors, we like the disruptive technologies in artificial intelligence, genomics, electric vehicles and 3D printing. We have a particular focus on socially responsible investing, taking into account potential opportunities for companies dealing with climate change. Asset allocation (diversification) guarantees neither a profit nor protection against losses. Sectoral investments are usually more volatile due to their narrow focus.

Myah Moore Irick, The Irick Group, Merrill Private Wealth Management

Economic reopening has picked up, coronavirus cases continue to decline, and vaccines have built confidence, with global growth continuing to gain momentum overall. This is a positive time for investors to rethink their asset allocation and ensure that their overall wealth plan is in line with their values ​​and intent for their inheritance. We position client portfolios accordingly, contributing to cyclical positioning in the face of stock market weakness, including small caps, more economically sensitive sectors, fixed income, and specific thematic growth segments that are emerging as future innovation and infrastructure beneficiaries (i.e. large). Automation, impact). Impact investing is an important focus of our team. Impact investing means investing in the potential to generate a financial return and achieve measurable, beneficial social or environmental impact. More and more investors are striving to align their assets with their values. In particular, we see this in four key areas: Contribution to the sustainability of climate and environment (Planet); Supporting human dignity through inclusion, health and the development of life-giving communities (people); Promoting employment, economic vitality and sustainable communities (prosperity); and a commitment to ethics and social benefits (Principles of Governance). Impact investing is an area that we are incredibly excited about – especially gender lens investing and investing in diversity & inclusion funds. In fact, my team’s portfolios are built to generate both social and market alpha.

Scott Love, WesBanco Trust and Investment Services

In our view, the US economy will not recover gradually, but rather at one of the fastest growth rates in 30 years. The fiscal stimulus provided last year was the largest in history, at almost 20 percent of total GDP. A significant portion was invested in savings accounts that were issued during the year. The proposed infrastructure law and low interest rates will not support economic growth until 2021.

To fund this incentive, it appears that Congress and President Biden are ready to raise a number of different tax rates, which could hurt growth in 2022. As long-term investors, we focus on this impact on markets and sectors. As a result, we focus on high quality companies with a reasonable market share and solid management teams that act at reasonable valuations. Sectors we find attractive based on our longer-term view include healthcare, industrial and consumer discretionary. The companies in each of these sectors have different growth drivers and should perform well given our prospects. The investment horizon for many of our clients is measured in years, if not decades, which is in line with our mission to generate compelling returns over a market cycle. A long-term perspective gives us a decisive competitive advantage. Many peers and even global markets are increasingly short-term oriented, which can be fertile ground for active management. We use patience to deliver attractive risk-adjusted returns over the long term.

Henry Beukema, Guyasuta Investment Advisor

In the past few months, we’ve been focusing more on value stocks, including small and large-cap companies that can benefit from an economic rebound. We believe that banking, industry and materials are attractive. It’s not that investors should sell all of their tech / growth / pandemic stocks, but that FAANG plus Microsoft may not be the only market leaders for the next several years. The current ratings of the S&P 500 are 23x in 2021 profit expectations and 20x in 2022 compared to the historical average of 16x. Bond investors should continue to consider inflation and general credit quality as corporate balance sheets have higher levels of debt.

Jack D. Kraus, Allegheny Financial

We follow what some consider to be a boring approach of sticking to a target allocation, being diversified, and using professional money managers in each of the areas of a diversified portfolio. We are not committed to a crystal ball and our approach is solid for long-term investors.

Non-traditional factors caused the current economic environment and the recession. Consumers and businesses were tasked with being sent home and leading a different lifestyle for a year. Initially, companies that benefited from a home economy were the strong performers. After the vaccines were announced and then approved, we saw a major market rotation for companies that benefited from the economy opening up or returning to normal. The market acts more traditionally during the recovery period. Smaller companies tend to outperform larger companies during the recovery period. In addition, cyclical companies (also known as value stocks) tend to outperform companies with more stable growth during the recovery period. This may take some time. Our suggestion is to maintain broad diversification and spend more time getting back to normal than worrying about your portfolio.

Peter Mathieson, Fairview Capital

We want to invest in growth-oriented companies that trade at reasonable valuations. The recent surge in medium- and longer-term interest rates has caused the market to shift from the pandemic “winners” of the past 12 months back to companies well positioned for the eventual recovery of a “normalized” US economy.

We focus on companies and sectors that have historically performed well in times of economic expansion. This includes financial services and energy stocks, as well as business services. We continue to expect high spending in both healthcare and technology. Technologically, we prefer software and communications infrastructure companies over hardware because these industries have steady cash flows and customer renewal rates.

When positioning the customer portfolio, we continue to prefer equities over fixed-income securities. We keep our equity exposure at the upper end of the ranges agreed in our clients’ investment policy statements. We believe that fixed income investments at these very low rates present uniquely poor return potential relative to the associated capital risk. The 30-year government bond has lost more than 20 percent in value over the past six months.

We understand that investing in stocks also involves taking capital risk. For clients that we manage everything for, we have encouraged them to set aside 12 to 24 months of cash required to cover personal expenses and reduce the risk of having to access cash incorrectly over the time of the exchange cycle. We expect lower returns on stocks over the next decade than we have over the last 10 years, but we continue to expect stocks to significantly outperform high-quality fixed income securities.

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