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Advisers hedge 2011 investment bets

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Area financial advisers say emerging markets look strong for equity investors, and those interested in real estate should continue to think long-term.

International companies reaching into emerging markets may be the targets of the smartest investors in 2011, according to Jeffrey Gann, senior portfolio manager with Springfield-based BKD Wealth Advisors LLC. Gann said energy and tech stocks also look attractive, but gold may be too pricey, and bonds may not be the best bet to see a quick return on investment.

“Going into 2011, the stock side or equity side of asset allocation looks the most affordable as far as valuation goes,” Gann said.

Public companies that pull sales from countries such as Brazil, China and India, with emerging middle classes, are drawing a lot of attention, he said.

“There’s a lot of opportunities there that didn’t exist just a handful of years ago,” Gann said, pointing to common household items such as toothpaste and paper towels, “things that are wanted items by this up-and-coming middle class.”

Ken Schwab, broker with Wilhoit Properties, said that while the outlook for real estate investors is not as good as it once was, conditions are better than they were two years ago.

“No doubt about it, around five years ago, real estate was as hot as anything could be. And then, because of recessionary conditions, businesses didn’t expand as much, so they weren’t buying ground; they weren’t buying buildings, they weren’t renting as much space,” Schwab said. “But investors are always out looking.”

Schwab said the key with commercial real estate is to consider the big picture.
“Real estate investment has traditionally always been more stable than the stock market,” Schwab said.

Gann said during the last decade, tech company earnings have grown at a rapid rate, and share prices have not kept up with that growth after the tech bubble burst in the early 2000s making tech stocks look like a smart investment in 2011.

“In the late 2000s, a typical company like a Cisco or IBM was trading at 35 times earnings, but now they’re more reasonably priced,” Gann said.

Gann said industrial companies, on the whole, appear strong due to a large number of capital improvement projects under way across the country.

He said as oil prices increase, oil shares perform well, but that feeds the need for people to explore energy alternatives.

“That can stimulate that market, too,” Gann said.

Gold has nearly tripled in value since 2006, according to www.kitco.com, a tracker of global precious metal prices. According to Kitco, gold bullion hit a five-year high of $1,423.70 per troy ounce in January. Yellow metal prices were $1,335 on Feb. 2.

Gann said the economic uncertainty during the last several years has fed the rise in gold prices, and today’s near-record highs may make positive returns difficult to achieve. Similarly, he said investments in government bonds might be challenged.

“With interest rates low, typically the only place they have to go are up, and if interest rates go up, bond prices come down,” he said.

Richard Hale, a financial planner with Ameriprise Financial Services, said emerging markets, and tech and energy stocks, do look promising for younger investors who can bear the cycles of a long-range plan. Older investors, on the other hand, should have less exposure to volatile markets.

“If history has taught us anything during the last 10 years, it’s that a balanced approach is your best defense against risk,” Hale said.

According to the Beige Book report, which summarizes anecdotal information on current economic conditions, the economic climate in the Federal Reserve’s Eighth District, including Springfield, improved moderately in manufacturing and services activity.

Retail and holiday sales increased in December, as did automobile sales, according to the Jan. 12 report. Residential construction increased in the district, but home sales continued to look bleak with sales down in November by 14 percent in St. Louis and down 8 percent in Little Rock, Ark. Real estate lending, which represents 73 percent of total loans in the district, decreased 2 percent from mid-September to mid-December, while commercial and industrial loans, representing 16 percent of total loans, decreased 1 percent, the Fed said.

Lee McClean III, a commercial real estate agent with Plaza Realty & Management Services Inc., is cautiously optimistic about local prospects.

“I believe that 2011 will be the beginning of a slow turnaround for commercial real estate. I don’t know that we are going to see any quick returns, but I do think there should be more activity than in the previous two years,” McClean said.

He said real estate inquiries increased in fourth-quarter 2010, and he feels more optimistic than he did a year ago.

“I don’t believe there are going to be any great short-term returns in commercial real estate out there,” McClean said. “People have to look at the long-term when they are buying, whether they are buying for investment purposes or their own businesses.”[[In-content Ad]]

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