11.28.2011
By Terry Flanagan

Opportunity Ahead

Investors are advised to stay “flexible, diversified and opportunistic” in 2012, noted asset manager.

As the markets dive further into the last quarter of 2011, asset managers have outlined their investment objectives for 2012.

“Be alert, flexible, diversified, and opportunistic,” said David Darst, chief investment strategist of Morgan Stanley Smith Barney (MSSB), and vice chairman of the MSSB Global Investment Committee.

Darst is responsibility for asset allocation and investment strategy, and was the founding President of the Morgan Stanley Investment Group. Darst advocates “multi-scenario portfolio positioning,” perhaps a conservative “go anywhere” take on “preparing for shocks and surprises,” he stated at the firm’s 2012 outlook.

Darst noted a plethora of both bullish and bearish factors facing the U.S. economy. Investors reigning in positive sentiment can revel in the near future low interest rates, low inflation, and low real rates, as well as, favorable corporate profits in the year ahead. Some of the healthiest corporations may be in the emerging markets.

Also amongst Darst’s favorable growth industries are mobile internet, biotechnology, stem cell research and alternative energy.
Of course, there are also much less rosy scenarios that could bud from several of negative macroeconomic factors facing the global economy currently.

“Our employment picture is impaired as underemployment continues,” Darst said. “There’s weakness is the residential, and commercial real estate markets, as well as the poor state of state and local governments’ financial condition.

In a perhaps contrarian view, Darst cited a lack of a true stock market rally, citing the markets as lacking “volume, quality and leadership.”
“Markets did not reach or stay at excessively cheap levels,” he said.

For MSSB, tactical asset allocation will revolve around company characteristics such as “a strong franchise value, low earnings risk, a robust balance sheet, and dividend sanctity,” according to Darst.

In keeping with the “multi-scenario portfolio positioning proposition,” Darst highlighted that part of the firm’s tactical allocation will include “deploying offensive, defensive and special investment teams” in 2012.

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