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The investing world took notice when influential bond investor PIMCO recently said it was cutting its holding of U.S. Treasuries to zero. The decision helped heighten fears about the growing U.S. deficit and the political stalemate in Washington that is preventing any meaningful solution.
James Shelton, CIO of Kanaly Trust, tells BNN that investors would be wise to avoid U.S. Treasuries, as interest rates on bonds are set to rise in the face of strong economic growth.
“We believe as the Federal Reserve winds down QE2…coupled with the improving economic fundamentals in most areas of the United States economy—and the global economy—that that’s going to require a little bit higher interest rates to entice buyers,” he says.
Shelton says investors should instead focus on large cap growth stocks.
“We think after 10 years of under-performance for large cap stocks that they look relatively inexpensive,” he says. “We also think that as we move through the year when we have higher interest rates, we some inflation and pressure on profit margins, that those very large companies that have good competitive positions and are able to absorb those cost pressures and still deliver good earnings growth are going to be the place to be later on this year.”
Shelton says one way investors can play the large cap market is through an exchange traded fund that mimics the Russell 1000 growth index.