MORGAN STANLEY WEALTH MANAGEMENT PRESENTS: The 10 Best Investments In A Year Of Easy Monetary Policy

david darst

Photo: WealthTrack via YouTube

“The highly accommodative policy stance being pursued by the Federal Reserve, the European Central Bank (ECB) and other central banks should continue to bolster financial markets in 2013 despite fiscal policy drag and another year of subpar growth in the global economy,” writes the global investment committee for Morgan Stanley Wealth Management.Led by Chief Investment Officer Jeff Applegate and Chief Investment Strategist David Darst, MSSB have put together the firm’s list of 10 Investment Ideas for 2013.

The firm isn’t especially bullish on global growth prospects, but they believe central bank easing should prop up financial markets.

Morgan Stanley’s ideas are based off the following trends:

  • Exceptionally low interest rates;
  • Emerging markets driving global growth; and
  • Continued monetary easing.

We’ve provided the team’s list of favoured investments, the benchmarks used to track performance, and the rationale for each idea’s inclusion.

10. Master limited partnerships receive special tax benefits

Benchmark: Alerian MLP Index

Listed on securities exchanges, these investment vehicles are concentrated in natural resource industries and offer superior dividends compared to conventional stocks. MLPs can avoid state and federal taxes if 90 per cent of their income is derived from the production, transportation, or processing of natural resources.

Source: Morgan Stanley

9. Water might be the most important commodity story of the century

Benchmark: ISE Water Index

This was Morgan Stanley's top idea for 2012, and it provided a return close to 28 per cent. The team believes that declining supply and rising demand will continue to create the 'perfect storm' as increasing urbanization contributes to the scarcity of this precious resource.

Source: Morgan Stanley

8. High-quality municipal bonds are exempt from taxes

Benchmark: Barclays Capital AMT-Free Intermediate Continuous Municipal Index

Morgan Stanley expects investors to flock to municipal bonds to avoid the impact of higher tax rates eating into returns. The team recommends high quality general obligation and essential services revenues bonds as well as prerefunded muni bonds with higher yields than U.S. Treasuries of identical terms.

Source: Morgan Stanley

7. Investment grade credit offers better returns than traditional safe havens

Benchmark: Barclays Capital US Aggregate Corporate Index

Corporate balance sheets are in impeccable condition, as stock values have appreciated substantially since the recession and interest rates remain low.

Source: Morgan Stanley

6. Emerging markets equities have room to grow

Benchmark: MSCI Emerging Markets Index

Emerging markets will see middle-class domestic consumption continue to rise. Many of these nations also have fewer debt overhangs than developed nations such as the U.S. or Spain, which bodes well for future fiscal and/or monetary stimulus.

Source: Morgan Stanley

5. Global Gorillas are another way to capture EM growth

Benchmark: S&P Global 100 Index

Morgan Stanley believes these large multinationals offer favourable exposure to emerging markets, and recommends capitalising on firms with strong businesses in China, India, and Brazil.

Source: Morgan Stanley

4. Dividend aristocrats are an attractive alternative to low-yield bonds

Benchmark: S&P 500 Dividend Aristocrats Index

Dividend yields are likely to exceed safe-haven bond yields while interest rates remain low. Morgan Stanley prefers large-cap, blue-chip companies with a track record of dividend payouts.

Source: Morgan Stanley

3. US large-cap growth stocks are cheap

Benchmark: Russell 1000 Growth Index

These large firms are also poised to benefit from growth opportunities in emerging markets. Morgan Stanley says large-cap stocks are 'historically cheap relative to mid- and small-cap stocks.'

Source: Morgan Stanley

2. Emerging markets bonds are much better than they used to be

Benchmark: JP Morgan Emerging Market Bond Index, local currency, unhedged

The amount of investment grade bonds in emerging markets has doubled over the past decade. Morgan Stanley recommends purchasing these bonds in local currencies , as the firm expects currency appreciation to boost the total return.

Source: Morgan Stanley

1. Commodities and gold will rebound with a vengeance after a subpar performance in 2012

Benchmark: 50/50 split: Dow Jones-UBS Commodity Total Return Index & spot price of gold

Resource-intensive growth in emerging markets is bullish for commodities, just as continued monetary accommodation and quantitative easing should reignite the demand for gold.

Source: Morgan Stanley

Goldman tells you where to find those Dividend Aristocrats.

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