Today’s Top Pick for 2014 is a fund in transition, shifting its portfolio focus to a cycle from broad market participation to a period in which choosing the right investments will become critical.
MainStay Marketfield (MFLDX)
from Bob Carlson’s Retirement Watch
We’re in a transition between economic environments, says Michael Aronstein of MainStay Marketfield (MFLDX). The fund caught most of the major investment trends in recent years, and that shows in its stellar returns, especially when measured on a risk-adjusted basis. But the fund was flat to down during the last quarter of 2013. That’s because Aronstein and his team have been shifting the portfolio somewhat to capture what they believe are emerging trends.
Stock valuations in the U.S. are at normal levels, in Aronstein’s view. He believes stock prices are likely to continue to advance, but in a different way. Monetary policy primarily will drive stock prices going forward, but the increases won’t be as broad-based as recently.
Aronstein believes that central bank easy money policies caused much of the asset price inflation of the last five years. A number of assets already reached excessive price levels and won’t rise further. Some have been sinking.
The MainStay Marketfield team expects that at some point the Fed’s monetary policy will cause higher consumer prices. Rising prices will help some businesses and hurt others. The inflation is likely to permeate the rest of the economy and eventually affect stock and bond prices, in Aronstein’s view.
He doesn’t try to forecast when that will happen, but expects the U.S. stock bull market will continue for 18 to 36 months, from late 2013. To prepare, he’s gradually shifting the portfolio. For example, late in 2012 the fund began selling short long-term U.S. Treasury bonds. So far, the position helped the fund only during the second quarter of 2012. The fund also has been increasing exposure to cyclical and resource sectors of the stock market.
The fund continues to sell short emerging market stocks (except Mexico). That’s helped most of the last two years, but hurt performance during the last quarter of 2013. Aronstein believes selling short the emerging markets will remain a good position because many emerging economies are suffering from rising inflation and outflows of capital. These pressures could result in some countries defaulting on their debts.
MainStay Marketfield also was among the first to plunge into European stocks after the Greece crisis, and that has helped returns. The fund still has significant positions in European stocks, Japanese stocks, and some sectors of the U.S. market.
Bob C. Carlson, Bob Carlson’s Retirement Watch, www.retirementwatch.com, 800-552-1152, December 27, 2013