Investors have been far too cautious and need to venture into riskier sectors, such as financials or basic materials.
They'll be rewarded because global markets are rebounding, says Jean-Baptiste Nadal, managing director and lead portfolio manager of global equities at Metropolitan West Capital Management. He's also an analyst for the Renaissance U.S. Equity Value Fund.
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What's helped sparked a change in sentiment, he says, is the resolution of major debt crises on both sides of the Atlantic. This has supported markets and triggered equity inflows.
The best thing that happened in 2012 was clarity was created around the ECB policy, says Nadal. "In the summer, Mario Draghi [declared he] was willing to backstop any country within the Eurozone."
He adds, "Monetary authorities in the U.S., Europe, Japan have also been very accommodative, creating a floor for equity markets globally." Similarly, the last-minute prevention of the U.S. fiscal cliff proves political agreements on such issues are positive for markets.
Nadal says money managers will still pick stocks despite perceived risks.
"We're focusing on high-quality companies outside and within in the U.S. That is structurally our strategy. The [real] risk for investors is to be too defensive and too cautious."