As Jim Cramer of CNBC's Mad Money always says: "There's always a bull market somewhere." In the spirit of that bullish way of viewing markets in both good and not-so-good times, here are 10 investment ideas that panelists from USA TODAY's 2016 Investment Roundtable say can help you build a winning portfolio in 2016.
1. FOCUS ON INDIVIDUAL STOCKS. If David Kostin of Goldman Sachs is right and the broad S&P 500 stock index posts flat returns next year, owning an index fund that tracks and mimics the performance of the large-company stock gauge may not be the most profitable strategy. To increase your odds of posting double-digit percentage gains next year, pinpoint individual names that have what it takes to outperform the S&P 500.
"Stock picking will become much more important," says Kostin, who favors growth stocks with strong balance sheets and companies that the bulk of their revenues domestically.
2. LOOK BEYOND FANTASTIC 'FANG' STOCKS: Tech stocks Facebook, Amazon, Netflix and Google got so hot, so hyped and so dominant that they earned the acronym "FANG" stocks. The big four also posted big gains this year — so sizable, in fact, that they were responsible for most, if not all, of the gains in the market-cap weighted Nasdaq composite. Next year, however, tech leadership is not likely to be as narrow, says Josh Spencer, manager of the T. Rowe Price Global Technology Fund.
"I think the tech market will broaden next year," he says, adding that tech names that will benefit from the cyclical uptick in the economy will get a fresh look from Wall Street. Examples include companies that make semiconductors and semiconductor equipment and which are breaking into new growth areas, such as high-tech gadgetry now found in the modern auto fleet.
3. REJECT USA BIAS AND GO GLOBAL. The U.S. stock market faces a host of headwinds — such as coming interest rate hikes from the Federal Reserve, a strong dollar and full valuations, to name a few — that could limit gains in 2016. Those domestic obstacles bolster the case for putting more cash to work in foreign stock markets, such as Europe and Japan where central bankers are more market-friendly and valuations are less pricey, says Russ Koesterich, global chief investment strategist at BlackRock.
"There are certain headwinds in the U.S. that are actually tailwinds in other parts of the world," Koesterich says. "In terms of valuations, I don't think we are in bubble territory, but U.S. valuations are a bit stretched. They are less stretched in Europe and Japan."
4. BENEFIT FROM "BIFURCATED" MARKET. Even if the broad U.S. stock market posts flat returns again in 2016, it's because the winners will be offset by the losers, says Kostin of Goldman Sachs. The key, therefore, is to zero in on stocks with three characteristics that will give them a better chance to climb up the performance charts.
First, "focus on companies with strong balance sheets, as they typically outperform in a rising interest rate environment," Kostin says. Second, "with the strong dollar weighing on foreign sales of large U.S. companies, invest in stocks that are generating revenue domestically, as compared to those that book sales via exporting." Lastly, go for growth stocks not value names. "When economic growth is tepid, that is when you want to own equity growth," he says.
5. CONTRARIAN PLAY: BUY BONDS. Sure the Fed is on track to start hiking interest rates for the first time in nearly 10 years. And there's no shortage of talk about the eventual bursting of the bond market bubble. Despite all the scary bond talk, Kate Warne, investment strategist at Edward Jones, says there's a still a place for bonds in every investor's portfolio.
"Nobody likes bonds, and people are saying, 'oh my gosh I will lose money in bonds,' " says Warne. But bond performance might not be so bad if the Fed moves slowly with its rate hikes and inflation remains low, she argues. Under that scenario, "bonds actually do OK," she explains. "If David Kostin is right and we get zero returns from stocks, you may do just as well in bonds and you have a lot less volatility then if you are fully invested in stocks. Bonds may not be a great investment, but they may actually not be too bad compared to everything else."
6. PLACE A BET ON THE AMERICAN CONSUMER. The U.S. manufacturing sector is arguably in recession. But the American consumer – which accounts for roughly 70% of U.S. economic activity – is on much stronger footing heading into the new year, thanks to a job market revival, lower gas prices and signs of wage growth finally finding their way into Americans' paychecks, says Jeff Moser, manager of the Wells Fargo Large Cap Core Fund.
Next year, "the U.S. consumer will start to feel a little better," Moser says.
7. HEDGE YOUR FOREIGN CURRENCY RISKS. While opportunities might abound in foreign stock markets, investors who invest abroad should take advantage of investment products that hedge currency risks related to the strong dollar. A strong greenback, of course, means investors who make money in markets like Europe and Japan that have weaker currencies will see the size of those stock gains shrink once the profits are exchanged back into U.S. dollars.
Koesterich cites BlackRock's iShares Currency Hedged MSCI EAFE exchange-traded fund (HEFA) as one way to get exposure to places like Europe and Asia while lessening the impact of currency fluctuations on performance. "The fund offers exposure to foreign markets but controls risk (with hedging strategies) that mitigate the currency impact," he says.
8. DON'T'BE SPOOKED BY FED RATE HIKES. There's no question that the first Fed rate hikes in nearly a decade will cause market volatility and spark a selloff from time to time in 2016. But don't let coming rate hikes scare you out of the market, says Warne of Edward Jones.
"I don't think rate hikes are as scary as" some pundits suggest, she says. Rate hikes are "not the end of the world or the end of the equity bull market."
The reason: the Fed has assured markets that the hikes will be gradual. Rates are also starting from 0%, which means rates — even after a number of quarter point increases — will still be very low. "People are overestimating the impact of what a small rate hike will be," Warne adds. "This actually is a good new signal for investors because the Fed is finally saying, 'We don't need to have the extraordinary policy that we have had in place for 10 years.' "
9. REAP REWARDS WITH REVENUE GROWERS. Companies that can post strong sales and revenue gains, despite headwinds such as higher interest rates and a stronger dollar, will be rewarded with higher stock prices next year as growth becomes scarcer and harder to find, says Wells Fargo's Moser.
"What I look for is the potential for excess returns, positive earnings surprises and good valuation," says Moser. Those winning ingredients, he says, are often found in stocks of companies with robust revenue.
Topping Moser's list of sectors that can generate strong revenue are technology, health care and consumer discretionary. What sectors didn't make the cut? Utility stocks and shares of companies that sell consumer staples.
10. STEER HOLDINGS TOWARD NON-TECH TECH. "A broad new trend is the penetration of tech into non-tech areas," says Spencer of T. Rowe Price. The best example is all those tech gadgets found in new cars and SUVs. The poster child for this emerging trend is electric-car maker Tesla. Component suppliers are also big winners in this new tech market.
"If you think about the electronic content that is in your car today versus what was in it five, 10 or 15 years ago, people are really making their car buying decisions not based on horse power, but based on the electronic content and the safety and infotainment technology," Spencer says.