Part 3 of 4

Active investing will be more rewarding than passive investing in the next few years, and investors should look to sectors that will benefit from stimulus spending, investment manager Frank Mersch said on Friday.

Mersch, who is the chair, co-chief investment officer and vice president of Front Street Capital, is bullish on equities for the year ahead.

“The markets still look pretty good,” said Mersch, speaking at an Advocis conference in Toronto on Friday. But he said opportunities for gains will be limited to certain sectors and stocks, so indexing is not the ideal way to invest.

“In these times, with all the uncertainty and concerns, you have to keep your portfolio active,” Mersch said. “The indexes could go sideways for quite a while.”

Mersch sees particularly strong prospects from sectors that will benefit from stimulus spending, since governments around the world continue to invest vast amounts of money into their economies.

“You have to position yourself where the greatest amount of spending is,” he said. “If there’s spending in that area, that means it creates more sales for companies, it creates more opportunity for those companies.”

In the United States, for example, Mersch expects a lot of investment to go into upgrading and expanding mobile phone and data networks as the popularity of smart phones continues to grow, creating opportunities for companies in that area. Another industry set to benefit from government spending in the U.S. is renewable energy, he said.

In many other countries, the energy, infrastructure and construction sectors are poised to benefit from stimulus spending, Mersch said.

He expects equities overall to outperform fixed income assets in the year ahead, and with the recovery likely to be long and drawn out, he does not expect interest rates to rise “in the foreseeable future.”

“The recovery is going to be very muted, so therefore you’re not going to see a lot of pressure on rates,” said Mersch.

IE