Markets are headed higher but stick with defensive stocks: Gary Shilling

Gary Shilling, president of A. Gary Shilling and Co., says individuals should stick with a "risk-on" investing strategy because stocks are still a buy. But he warns that are risks that could drag down financial markets and the global economy. 

Shilling still likes Treasuries (he has been bullish on Treasuries for decades) even though he believes deflation is lurking. He has broadened his portfolio to include defense stocks as a hedge against this deflaton risk. 

“You’ve got stocks that are really not supported by fundamentals and...with the uncertainty over Obamacare, with concern about minimum wage and income polarization...I play it defensively," he says. 

For Shilling, playing it defensively means investing in healthcare, utilities and consumer staples.

 DYI Comments: The Aggressive Portfolio's 10% holding is their Equity Income Fund that has a current yield of 2.73% which is almost 100 basis points higher than the S&P 500.  For as long as the market stays "risk on" this is reasonable place to be.  Below is their top 10 holdings and as you can see they are decent dividend payers.

Month-end ten largest holdings
(30.3% of total net assets) as of 01/31/2014 

1		Johnson & Johnson
2		Wells Fargo & Co.
3		Microsoft Corp.
4		Exxon Mobil Corp.
5		Chevron Corp.
6		Merck & Co. Inc.
7		JPMorgan Chase & Co.
8		General Electric Co.
9		Verizon Communications Inc.
10		United Technologies Corp.

The Long Term Bond Index has 35% in Treasury Debt.  During any market smash there will be a flight to quality and Treasuries will rise in value.  Here is what the rest of portfolio looks like.

Portfolio composition
Distribution by credit quality† (% of fund)  as of 01/31/2014   Long-Term Bond Index U.S. Government 35.6% Aaa 2.0% Aa 7.1% A 25.3% Baa 30.0% < Baa 0.0% Total 100.0%

All and all I'm in A. Gary Shilling camp with higher yielding stocks and a bevy of treasuries.  The Great Wait continues.

DYI