J.P. Morgan Asset Management's David Kelly reiterated the need for investors to remain invested in diversified portfolios, despite “marginally high” valuations in the equity markets.
Mr. Kelly, chief global strategist and head of the global markets insights strategy team for J.P. Morgan Funds, compared the current S&P 500 price-to-earnings ratio with its historical average as “driving 72 mph in a 65 zone.” It's high, but it's not going to get you a ticket, he said.
But he did stress the need to be careful in security selection. “There's not much out there that is cheap, but you have to be invested,” he said Thursday at the 2015 Morningstar Investment Conference in Chicago.
Investors should be focused on alpha generation and where they can get an extra 2% return when the beta play eases, he said.
He suggested underweighting fixed income and stressed the need for diversification across fixed-income portfolios. “The further you get from the U.S. Treasury market, the better.”
In terms of equities, he warned against sectors that historically have been sensitive to interest-rate increases, such as real estate investment trusts and utilities.
For non-U.S. equities, he sees long-term opportunities in emerging markets, and opportunities in Europe in the medium term.
On Federal Reserve policy, Mr. Kelly noted investors need to be worried about bubbles. Quantitative easing, “has been fertilizer for weeds; it builds the weeds of bubbles,” he said.