As a record amount of money is pouring into the market, Meghan Shue of Wilmington Trust sees a troubling trend.
Shue, who oversees nearly $ 136 billion in assets, is concerned that private investors are rushing towards stocks and cryptocurrencies that are high risk and offer little or no benefits.
“It’s a little bit of chasing returns in the wrong areas. It’s also a little bit of chasing what has already happened,” the company’s head of investment strategy told CNBC’s “Trading Nation” on Friday. “One thing we need to be aware of is that we don’t extrapolate what we’ve seen in the past three months into the future.”
Shue’s warning comes after Bank of America’s latest weekly report found investor inflows hit record highs. The latest data shows that $ 58 billion has been invested in global equities.
“What we’ve seen from Bank of America data is record inflows into the US largecap sector in the technology sector,” said Shue, a CNBC employee. “But less attention is being paid to areas that we believe have better potential for future returns.”
Shue’s concerns also apply to speculative assets involved in this year’s Reddit-induced trading mania, pumping up lower quality stocks – as well as bitcoin. As of Friday’s close, the cryptocurrency is up about 65% since January 1 and 360% in the past 52 weeks.
“Money is coming off the sidelines and looking more speculative than it has been in years,” Shue said in a special note to “Trading Nation.”
Rather than piggybacking on areas that have already seen sharp moves, Shue is urging investors to focus on economically sensitive stocks, small caps and emerging markets. Her investment timeline is 9 to 12 months.
“There’s more room to catch up in the long run,” added Shue.
In the case of emerging markets, she argues that the group typically performs strongly in the early stages of global economic expansion.
“You have more exposure to cyclicals and value than last year,” she said.
A market bull, Shue believes the application of the Covid-19 vaccine will accelerate in the coming months and help the economy recover faster than generally expected.
But she does not rule out a relapse on the road because of the great euphoria in the market. In that case, Shue recommends buying the dip and going small.
“In the US, the largest transaction is the US small cap,” said Shue. “If you look at early periods of expansion, you see the US small cap surpassing a fairly large margin over a period longer than just a few months.”
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