As the market inches higher, many investors worry that a looming 10-20% correction could be in the cards. With various U.S. investment banks downgrading their year-ahead outlooks, with some seeing meagre prospective returns over the next decade, it’s clear that investors are going to need to “stock pick” their way to better results.
Undoubtedly, passive investing, which has been all the rage in recent years, could be about to take a backseat should prospective returns be modest in nature through the 2020s. Of course, there are far too many variables to conclude that returns from here will be terrible. But given heightened valuations and the speculative appetite, I would not be surprised if markets were to consolidate from here, perhaps for many months, if not years at a time.
Remember, markets can “correct” themselves by doing nothing for prolonged periods of time rather than suffering a devastating market pullback. What lies ahead is anybody’s guess. But regardless, you should not let downbeat guidance for the S&P 500 or TSX Index stop you from scooping up value where you see it. Prudence and discipline may be key to outperforming in this kind of market environment, rather than market timing or buying “sexy” stocks at extreme valuations.
Stock pickers don’t need to settle for weak returns
In this piece, we’ll have a closer look at one value stock that could help give active investors to edge in a market environment that may be less rewarding to those who’ve stuck primarily with passive investment options like index funds.
When it comes to outperforming the markets, your odds increase with the greater degree of market inefficiency. In the mid-cap universe, disciplined investors may be able to spot greater variants between a stock’s market value and its true worth. And for those willing to invest in emerging markets, especially in nations expected to grow their gross domestic product at a quicker rate than Canada, one’s odds of doing well in a “lower prospective return” environment are further enhanced.
Without further ado, consider the BMO China Equity Index Fund (TSX:ZCH).
BMO China Equity Index Fund
The ZCH provides Canadians with a trivial way to bet on emerging growth out of China. With some of the best high-tech growth ADRs overweighing the ETF, I think Canadians should strongly consider going against the grain, now that almost everybody on the Street is bearish over U.S. ADRs. There are high risks, with the threat of delistment and Chinese regulations. That said, there are also high rewards for investors willing to buy shares of the ETF while they’re off over 40% from their peak levels.
The big money has had some pretty bearish things to say about China of late. George Soros recently criticized BlackRock’s Chinese investments. And money manager Cathie Wood has been selling Chinese names of late amid the recent downtrend. Could both investing legends be wrong about Chinese investments? It’s possible.
Regardless, young and venturesome investors shouldn’t shun them if they’re looking for superior growth prospects over the next decade, one that could be far less rewarding than the past decade.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.