Connect with us

Small Caps

This Multi-Billion Dollar Fund Manager Says Investors Are Missing Out On The 4 Most Valuable Parts Of The Market

This Multi-Billion Dollar Fund Manager Says Investors Are Missing Out On The 4 Most Valuable Parts Of The Market

These 4 areas of the market could help investors mitigate the current risks to the market.

Larry Glazer had some words of wisdom for investors this week.

The managing partner at Mayflower Advisors told CNBC on Tuesday that it’s time to ditch the “barbells,” referring to the strategy of buying into stable low-risk stocks alongside risky speculative investments, a practice that Glazer says is putting investors in an “extreme and dangerous” position now.

“On the one hand, you’ve got the barbell of passive investing. You’ve got the S&P 500 soaking up money,” Glazer said. “On the other side of the equation, you have small, private companies, again, soaking up capital left and right from drunken sailors looking for the next hot deal.”

Glazer, who’s firm manages more than $2.5 billion in assets, says this strategy has helped drive up the valuations of companies like WeWork—which was forced to delay its IPO amid widespread criticism of its spending and governance—and Uber (NYSE: UBER) which sunk below its IPO price in August and has been headed down ever since.

“The result has been a class of IPOs in 2019 that is the least profitable since the tech bust of 2000,” Glazer said. “Less than a quarter of these companies are actually going to make money.”

But it’s not all bad news. Glazer argued that “this is exactly what the market needed, because on these extremes sometimes the best seat in the boat is right in the middle where it’s the least rocky.”

So where is this middle seat in the market? Glazer says small caps, financial stocks, energy stocks, and European dividend yielders are the areas to be in now as they are underinvested and becoming increasingly valuable.

Small caps have had a rough year, but began to see a bit of a resurgence early this month as investors who had dumped riskier assets in favor of more defensive ones this summer began jumping back into relatively cheaper equities like small caps. 

The iShares Russell 2000 ETF, which tracks the Russell 2000 Index of small caps, saw its greatest weekly inflows in a year in the first week of September.The ETF’s top holdings include TopBuild Corp (NYSE: BLD), Darling Ingredients (NYSE: DAR), and Skywest (NASDAQ: SKYW),  which are up 10,54%, 6.51%, 9.48%, respectively, over the last month. Since bottoming on August 27, the small cap ETF has rallied 10.24% compared to the S&P’s gain of just under 4%.

As for energy stocks, the sector has been on a wild ride since this month’s attacks on the heart of Saudi Arabia’s oil infrastructure, which briefly cut off 5% of global oil production. The S&P Oil & Gas Production ETF—with its top holdings including Whiting Petroleum Corp (NYSE: WLL), Murphy Oil (NYSE: MUR), and Marathon Petroleum (NYSE: MPC), among others—is up 12% over the last month, while the S&P Energy Sector was pushed out of bear market territory and is now up 8% for the month.

“You still have a lot of positive trends in the United States,” Glazer said. “You’ve got low interest rates, you’ve got low energy prices, you’ve got low unemployment. You’ve got a really favorable backdrop leading into the presidential election. You’ve got the potential for global stimulus, whether it’s China or Europe or the United States. So, all those conditions do give us a tailwind for some of the areas the have been left behind where valuation is attractive.”

Even despite geopolitical uncertainties surrounding the trade war with China, tensions in the Middle East, and Brexit in Europe, as well as uncertain monetary policy in the U.S., Glazer argues that these areas of the market represent under appreciated opportunities that can help smart investors mitigate some of the current risks to the market.

“There’s no doubt this is a long expansion. We’re long in the tooth, and that’s why we think a rotation is warranted here away from some of these really high-valuation names,” Glazer continued. “That is where the risk in the market is today.”

Glazer cautioned that just because risks to the market are rising, that doesn’t mean investors should shy away from investing.

“Of course there are concerns here. But you know what? We need to move past portfolio labeling and portfolio shaming,” he said. “You don’t have to own the S&P 500 and be smear out of it.” 

“It’s not about growth versus value, it’s about valuation and being flexible in your mandate, something that’s been totally out of favor the last couple of years but is going to start to come back into favor second half of this year.”

More in Small Caps

Read This Next

To Top