Where to Invest $100,000 Right Now

With turmoil in the banking system and a possible recession looming, there is no shortage of big-picture economic worries for investors these days.

The gains so far this year in the S&P 500 and Nasdaq add another concern: that the US market, its performance driven by a small basket of stocks, is overvalued.

With these risks in mind, investment experts are looking abroad to Japan and Europe. European luxury brands are expected to benefit from China’s re-opening, while in Japan the draw is a more balanced stock market that offers access to semiconductor companies.

When investors were asked how they’d spend $100,000 on a personal passion, answers ranged from travelling in rural Japan to starting an AI tutoring company to a trip with friends to the Super Bowl — but only if the New York Jets happen to be playing.

For ideas on how to play the experts’ themes using exchange-traded funds, Bloomberg Intelligence senior ETF analyst Eric Balchunas offers suggestions for funds to use as proxies.

Before looking for new investment opportunities, review your existing portfolio to see if your asset allocation is where you want it to be. And with so much economic and geopolitical uncertainty, read The 7 Habits of Highly Effective Investors to make sure you’re on the strongest financial footing possible.

• Kristen Bitterly, Head of North America Investments, Citi Global Wealth

Global Dividend Growers

The idea: We expect to see an earnings contraction upwards of 10% and some kind of recession this year. We want to be invested in strong, well-run companies able to generate profit regardless of where we are in the economic cycle.

The strategy: An example of a global sector that is a defensive growth play is the pharma sector. These companies have been able to generate positive returns during the prior four recessionary environments. The sector is underperforming year-to-date but has a really compelling long-term outlook in terms of trends like investing in longevity.

The big picture: We want companies with strong management, strong balance sheets, good cash flow generation and sustainable and growing dividends. These dividend growers, or dividend aristocrats, have been able to outperform in 25 of the last 32 years. There’s also a valuation argument for global equities, which are trading at about a 31% discount to the S&P 500 on a forward price-to-earnings basis. And when you look at the composition of global equities, US equities represent 61% of the market capitalization but only contribute 50% of profits.

• Eric Leve, Chief Investment Officer, Bailard

Bet on Japan

The idea: Japan has been a very easy market to hate for a long time. But while you hear a lot of talk about on-shoring or near-shoring, a more pertinent trend that supports Japan is “friend-shoring.” The idea is that European and US companies are likely to pivot from their historical reliance on China to Japan for a range of intermediate goods.

The strategy: Tech is the second-largest component in the MSCI Japan Index, at just over 15%, but in Japan the stuff they do with chips is not the sexy stuff Nvidia is doing. It’s all the stuff that goes though your car, the stuff that tests other chips to make sure they are working. It’s the infrastructure of semiconductors and it’s a much better place to access that trend than in China. Also, Japan is the only developed market in the world with a positively sloped yield curve. So you can borrow money cheaply and lend it out to make a profit, which is hard to do almost anywhere else in the world.

The big picture: Japan is a fascinating market that is much more balanced than the US. No one sector dominates the index as technology does in the US market. Japan also has a broad range of consumer brands that export to the world and that we think will be major players.

• Brian Katz, Chief Investment Officer and President, The Colony Group

Go Long and Short

The idea: The last couple of decades have not been kind to long/short managers, as the rising market challenged relative performance. We think the environment going forward will be more advantageous to skilled stock pickers.

The strategy: For more than a decade, active managers really struggled to beat their benchmarks. The opportunity now is for the market to broaden out a bit so that there will be a larger universe of names to pick from on the long and short side. Last year, the playing field clearly tipped in favour of active management, although the first quarter of 2023 was a step backward.

As the Fed rolls back its easy money policies, we expect interest rates and inflation to level off at modestly higher levels. Higher inflation — think roughly 3% — is not problematic as long as it’s stable. Capital-intensive companies with relatively higher fixed costs may thrive as they regain some pricing power and are able to leverage higher nominal revenues against a fixed-cost structure. In our equity allocation, we have a component we call defensive equity. It’s been in higher-yielding dividend stocks for years and we are transitioning that over to this long/short exposure.

The big picture: We also like long/short because it could serve as a hedge against an adverse market environment. Moreover, the allocation may serve as dry powder to take advantage of any distress created by a downturn.

• Nancy Curtin, Chief Investment Officer,  AlTi Tiedemann Global

Shifting Towards Europe

The idea: In every decade, there are some overriding macro themes that are really important for investors to think about. The last decade was about disinflation, and this one will be concerned with inflation that is stickier than in the past — in the 3% to 4% range — and volatile. In this environment, you want to be more sensitive to valuation, and make sure you are exposed to sectors that will do well in a more inflationary environment. We also like companies that can pass on pricing increases.

The strategy: Recent economic and earnings statistics from Europe show much-improved growth over early-year expectations. Europe has a lot of interesting luxury companies, including LVMH, and China’s re-opening with an emphasis on a consumer-led recovery should be supportive of luxury franchises in Europe. Chinese tourists are spending and travelling again, and companies like LVMH are well-positioned. Also, I think there will be a big industrial revival in Europe — it has an imperative on the renewable energy front and at some point it will have to rebuild Ukraine. Depending on the country, valuations are at a 30% to 35% discount to the US market and trade at around 12 times forward earnings versus 19 for the US.

The big picture: We’ve been rebalancing from a significant overweight to the US market and into Europe, which has more broad-based sectors that do well in an inflationary environment, whether it’s energy or financials or industrials. The value sectors tend to be larger than in the US.