Investors will need to be more selective in their stockpicking because modest economic growth of about 2% will not lift the entire market going forward, said Ronald Sanchez, chief investment officer at Fiduciary Trust Company International. “The stock market has done well as a whole since the Great Recession, but now we are experiencing a transition where we need to pick stocks that do well in different environments,” said Sanchez. “Much more selectivity needs to be a focus for investment managers.” Fiduciary Trust Company International is the $74.8 billion wealth management unit of Franklin Templeton . Sanchez said a 2% economy is nothing new, but previous economic cycles have conditioned investors to expect a stronger rebound and ramp-up in growth. In his view, the absence of a strong recovery range can be attributed to the difficulties associated with digging out of the banking crisis to the regulatory environment, subdued productivity and aging demographics. In his opinion, the modest pace of economic expansion means this cycle could have durability and longevity. The U.S. economy has been expanding for 82 months, but at least three other cycles since 1950 have lasted longer and were much more vigorous. “Leading economic indicators have been improving since 2010 but have not yet returned to their pre-crisis levels, possibly because the recession was so deep and the economic recovery so gradual. So this cycle may still have room to run,” said Sanchez, adding that in this unusual environment, businesses have been “slow to ramp up capital expenditures but quick to take advantage of low interest rates to repurchase stock and engage in other forms of financial engineering.” Putting it all together, Sanchez said he is exercising a “high degree of selectivity”, by searching for companies that appear to offer high-quality management teams, healthy balance sheets and durable growth potential. “We are investing in a ‘market of stocks’ rather than the stock market,” said Sanchez. “Companies that can perform well in a 2% economy do exist and we are determined to find them.”
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