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Wednesday, February 3, 2010
2010 investment opportunities for entrepreneurs
By Gary McGuirk and Paul McCauley, private wealth advisers at Merrill Lynch
MHT's Jackie Noblett: VC funds run short in 2009
MHT's Galen Moore: Six Mass. tech firms head to world economic forum
MHT's Efrain Viscarolasaga: Tech companies may have to wait for stimulus funds
2009 was a memorable year for many investors, but presented additional challenges for entrepreneurs. While big business and equities have enjoyed a steady recovery since March, the National Federation of Independent Business reported that small business sentiment is no higher than it was in May.
Though some challenges will persist, entrepreneurs have good reason to be optimistic as we head into 2010. By answering these two questions, it’s clear that there may be great opportunities ahead for entrepreneurs in the New Year, especially overseas.
Question 1: Are we getting close to a recovery?
The short answer is yes. In fact, in the second quarter of 2009, strategists at BofA Merrill Lynch Global Research stated that the global recession ended. Since then, investors have seen sustained moderate growth in commodities and equities, and while the economic recovery will remain stronger than expected, it will be at a much slower pace than is typical for a major recession.
Fortunately, government policy initiatives and aggressive fiscal stimulus are fueling technological innovation in fields as diverse as health care, energy and computing, thereby creating opportunities for venture capitalists and entrepreneurs. Additionally, core global inflation will remain low, meaning the economic stimulus will likely be removed slowly and the Fed will not raise rates until 2011.
In fact, some of our entrepreneur clients have already experienced growth in their business outside the United States – overseas growth was a prevalent theme in 2009’s recovery and will continue to drive growth in 2010.
Question 2: How should we move forward in today’s economic environment?
We believe that a sound investment strategy for investors in today’s market should include a diversified portfolio of emerging and developed markets, and commodities. The allocation between these asset classes will vary depending on each investor’s unique portfolio, but in general, compared to 2009, investors should consider reducing cash, increasing equities and overweighting international equities and fixed income.
Emerging market equities, in particular, are expected to give a higher return in a long-term analysis, given their strong economic fundamentals and outlook. High growth, low inflation, infant credit cycles and low real rates are all secular positives for emerging markets. In 2010 emerging Europe will play a central role, with rising export demands as their new source of growth.
Improvements in the U.S. and global economic outlook will likely create cyclical demand pressure on commodity markets. Even as the U.S. dollar stabilizes, commodities prices are expected to rise with an upturn in the global economic cycle, and we recommend that entrepreneurs be bullish on oil, copper, gold and platinum. There are a wide variety of equity investment opportunities in commodity exporters like Brazil and Australia.
There can be benefits for entrepreneurs to increase bond exposure outside their home country. In developed international markets, the correlation between stock and bond returns trend toward the negative. Since the bond income is taxable as ordinary income for investors that hail from the U.S., it may make sense for entrepreneurs to position them in tax deferred accounts.
As every investor’s financial situation is unique, before making important financial decisions, consult a trusted financial advisor for guidance. They can help you identify opportunities appropriate for your financial situation and risk tolerance, to help you stay on track to pursue your financial goals.
The end of 2009 may be remembered as the beginning of a global recovery that is expected to be beneficial to both entrepreneurs and investors. Though entrepreneurs may have found it difficult to start up and sustain a new business with a focus in the US, the aggressive policy stimulus, slow and steady growth leads, and positive outlook for the global markets should encourage great entrepreneurial opportunity in 2010.
Gary McGuirk and Paul McCauley are private wealth advisers at Merrill Lynch in Boston. They can be reached at gary_mcguirk@ml.com and paul_mccauley@ml.com, respectively.
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