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- Five leading strategists at the $1.9 trillion Wells Fargo Investment Institute told Business Insider which assets and themes they think will do the best in 2020.
- One common theme from their ideas is seeking steady income while trying to keep risks from getting unacceptably high.
- Wells Fargo's forecasts for the new year include minimal gains for stocks and declining bond yields.
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It's holiday shopping season for a lot of people, including investors who are looking for the best places to put their money in 2020.
The heads of the Wells Fargo Investment Institute - the bank's $1.9 trillion investment unit - contributed their recommendations at a media event in New York City this week.
Like many other experts, they're telling investors how they can seek better returns and reduce risk as US economic expansion and bull market in stocks stretches into its 11th year and the bond bull market continues in its third decade.
The firm's forecasts for 2020 call for the S&P 500 to finish at 3,200 to 3,300, which would mean stocks will rise less than 5% from their current levels, while the yield on the 10-year Treasury note is projected to dip to a range of 1.25% to 1.75%.
Business Insider asked five of the institute's leading strategists about the asset classes they expect to perform the best, and collected their four top answers.
(1) Master limited partnerships
John LaForge, the firm's head of real asset strategy, says he sees great value in master limited partnerships in the energy industry. Energy companies have been among the market's worst performers in 2019, but LaForge says MLPs are uniquely appealing in the current low-yield world because of their payouts and potential price gains.
"If you stay mid-stream high quality within MLPs I think you'll do really well," he said. "The average yield of an MLP is about 8.5%. Can you find that today?"
Investors who want exposure to some of those ideas could invest in an ETF such as the ALPS Alerian Energy Infrastructure ETF.
(2) Distressed assets
Adam Taback, head of global alternative investments, picks up on his firm's recommendation that investors reduce risk. He notes that at this stage of the market and economic expansion, and with recession concerns paramount, a lot of investors are going to be trying very hard to reduce risk.
That means there are going to be a lot of motivated sellers dumping assets at hefty discounts, and advises investors to take advantage.
"We are expecting there to be great value in other people's distress," he said. "As people are starting to dump things that are fairly attractive, we expect to be the garbage collector picking all that up."
(3) Preferred securities
Bond prices have been rising for so long that some experts find it deeply worrisome - and those rising prices have contributed to an unprecedented amount of negative-yielding debt. But even if there aren't many cheap bonds, Brian Rehling, co-head of global fixed income strategy, says he's maintaining a bet on preferred shares.
"Preferreds is a good spot where you get the income, you don't really get the leverage," Rehling said. "You're obviously subordinated [to the company's bonds], but if you're buying well-capitalized, well-regulated companies, that shouldn't be too big of an issue. Plus in most cases it qualifies for dividend treatment as well."
Rehling adds that in 2019 and 2020, a lot of his time is spent trying to prevent harmful errors caused by stretching for more income and taking on too much risk.
"What we're really focused on is making sure clients don't make foolish decisions, because sometimes the desire for income is so great that you're willing to stretch a little bit, perhaps further than you should," he said.
One way to invest in a group of preferred securities is the VanEck Vectors Preferred Securities Ex Financials ETF.
(4) Emerging markets
While US stocks have dominated the market for years, senior global market strategist Sameer Samana and head of global asset allocation strategy Tracie McMillion are both telling investors to make sure they keep money in international stocks, and emerging markets in particular.
Samana says he considers himself neutral on emerging markets stocks, which may not be an overwhelming recommendation. But if the trade war eases, he believes those companies could take a leadership position. He says he prefers large-cap companies over mid- and small-cap stocks and says the biggest gains could come from more consumer-oriented regions like Brazil.
McMillion says international stocks offer appealing valuations and dividends, and echoed Samana's recommendation that investors make sure they're not overlooking the rest of the world.
"The markets have been so US-centric over the past decade, and those returns have been strongly in favor of US, that many have started to pull back on their global diversification, probably just at the wrong time," McMillion said.
Investors seeking to apply that advice can use the Vanguard Emerging Markets Stock Index Fund ETF.