If the Fed reduces liquidity this year money manager Thomas H. Dinsmore, who specializes in closed-end convertibles, says he will structure his portfolio toward more counter-cyclical industries that are experiencing global demand growth.
“The stock market tends to anticipate things by somewhere between six months and 18 months, so if the experts are already saying that this fall they’ll have ended quantitative easing and they are likely to start figuring out a way to try to prevent inflation, then that would imply that the market is nearing a top,” Dinsmore said. “I do think that they’re likely to try to find a way to gently reduce the overall liquidity, which might mean instead of a 15% up year this year, we may see a 10% up year this year.”
Dinsmore currently overweights in energy, materials and telecommunications as long-term investments, but says a reduction in liquidity would turn him towards sectors that may ride the bear more profitably.
“You try to stay away from cyclical issues, consumer discretionary-type things, which would tend to be autos, airlines, transports, that kind of thing,” Dinsmore said. “You would look for things that might be counter-cyclical, which would be perhaps certain health care issues. And you would want to avoid things like refining and marketing companies within the energy sector.”
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