Which sectors to watch for your portfolio

Liz Ann Sonders, Managing Director and Chief Investment Strategist at Charles Schwab, joins TheStreet to share tips for your portfolio.

Transcript

00:00What's your advice to your clients and investors right now as far as how they should position

00:05from a sector basis or, you know, given the current market dynamics?

00:10Yeah, so from a broader asset allocation perspective, you know, Schwab is $9 trillion

00:14of client assets. So we don't tend to suggest a lot of movement around in terms of your strategic

00:20asset allocation and exposure to equities. That's going to depend on where you sit on

00:24the risk spectrum, what your time horizon is, need for income, you know, etc., etc. But within

00:29the equity portion of the portfolio, we think you want to take a combination of both a sector

00:35approach but also a factor approach. Factor is just another word, of course, for characteristics.

00:39So we have outperformed ratings as of this moment on financials, energy, and materials,

00:47and we have underperformed ratings on REITs and consumer discretionary. Now, that can change,

00:52but that's where the current ratings are, which leaves the remaining sectors at,

00:58call it neutral or market performed. But we also think, particularly for stock pickers out there,

01:04that you don't want to just monolithically, you know, buy the energy sector or buy materials or

01:09buy financials. You want to do additional factor-based screening. And the factors we've

01:12been emphasizing kind of have a quality and almost GARP wrapper around them. So you want to look for

01:18quality-type companies. You want to look for a strong balance sheet, relatively low leverage

01:23ratios, high interest coverage. You want to have a combination of growth and value factors so that

01:29positive earnings growth, earnings stability, but also somewhat reasonable valuations. You

01:36want to have that value component to it. So again, it's kind of a quality wrapper,

01:40but you want to bring into the mix a screening for factors so that within

01:44sectors that might look attractive to us, you're also taking that additional step of screening for

01:50the highest quality companies. And I know tech, it sounds like is in one of your neutral areas,

01:56but AI is something that people are looking to get exposure to. Do you look at those the same

02:02and all the attention on NVIDIA's movements, not your opinion on NVIDIA in particular, but

02:09just how that plays into the importance of the overall market?

02:13There's still a lot of attention on AI, but things like mentions on conference calls has

02:18actually waned relative to what the recent peak was in the fourth quarter. And I do think the

02:23attention is not shifting, but it's morphing into just as much a consideration of the AI adopters,

02:32of the users across the spectrum of sectors and industries and types of companies where the

02:38questions are more about how are you adopting AI? How are you using AI? As opposed to last year,

02:44which was almost solely about the kind of creators or infrastructure associated with AI.