Tags: Cote | bonds | stocks | risky

ING's Cote: Equities Are 'a Great Place to Be and They'll Beat Bonds Going Forward'

By John Morgan   |   Wednesday, 25 Sep 2013 11:35 AM

Traditional safe havens like bonds and gold are actually the riskiest trades now, while stocks are the high-flying place to be, according to Doug Cote, chief market strategist at ING U.S. Investment Management.

"The defensive trade — cash, gold, bonds — has been a disaster for investors," he told Yahoo, "while the riskiest trade — equities — has actually been the safe trade."

By Cote's reckoning, the easiest way to lose money in the markets now is to be too defensive.

Editor’s Note:
5 Reasons Stocks Will Collapse . . .

Cote said that diversified portfolios split 60 percent stocks and 40 percent bonds were ahead 3.3 percent through August, while portfolios 100 percent in bonds were down about 4 percent.

"That's a 700 basis point spread and we think that continues" he told Yahoo, noting the trend has continued so far in September.

"Equities are cheap right now. They're a bargain. They're a great place to be and they'll beat bonds going forward," he added, predicting the S&P 500 will reach 1,760 by the end of the year.

Cote's ultimate strategy is to get back to a traditional 60-40 stock/bond weighting, but that means the 10-year Treasury yield needs to return to a "normalized" level of 3.5 percent to 4 percent in order for the 60-40 split to be successful, he explained.

New York University economist Nouriel Roubini has a positive outlook on the U.S. economy and the dollar, and, therefore, advises investors to fatten their portfolios with U.S. equities.

The United States is the headliner in this anemic global recovery, Roubini explained at IndexUniverse's Inside Commodities Conference in New York.

Roubini said the United States is definitely recovering, though he admits the nation has "severe" fiscal problems. Still, on a relative basis, those problems are "not as severe as in Japan, the eurozone and the UK," he said during the keynote address, IndexUniverse reported.

"You probably want to be underweight in bonds, and overweight in equities, mainly in the U.S.," he advised the crowd.

MarketWatch columnist Chuck Jaffe suggested in a Monday column that investors wary of both bonds and stocks might want to consider another investment alternative – convertible securities.

"Convertible securities are hybrids, typically interest-paying bonds (but sometimes preferred stock) that can be swapped for shares of the issuing company's stock at a predetermined price," Jaffe wrote. "The bond-like-yield aspect of a convertible protects against stock declines, while the ability to convert into stock offers shelter against falling bond prices."

Editor’s Note: 5 Reasons Stocks Will Collapse . . .

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