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Risks from skyrocketing valuations of U.S. technology stocks are “extremely” high, and investors should look for value in U.S. small caps and international equities, Leo Kelly, founder and president of Verdence Capital Advisors, said on Wednesday.

Kelly, whose firm oversees $2.5 billion in assets, told the Reuters Global Markets Forum that the worst of the damage to the U.S. economy from the coronavirus pandemic is likely over, and the next round of aid should not try to do “too much”.

Have you noticed any sectors where the broader market is currently overlooking value?

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A - You have to move away from the “hot dots” of the moment. Capital is being pulled out of other areas of the market and put into one group. We’re starting to hit pretty absurd levels - the valuation gap between the small tech group and the rest of the market has gotten to an extreme.

When stocks looking like they’re at a bubble ... you can’t just look at valuation and say “it’s going to fall.” The risk is becoming extremely, extremely high in those areas.

Small-cap value is still down over 20% and large cap value is down in the mid-teens. Financial, industrial and consumer names look good. There’s going to be a meaningful push to bring back manufacturing to the United States and that is going to benefit small caps.

We’re overweight international markets. Europe looks very interesting; they are recovering faster than us and valuations are as inexpensive as they’ve been in decades. Emerging markets look very interesting, although they will be more volatile.

Q - What are you looking for in the next U.S. coronavirus aid bill?

A - We are looking for something to temporarily fill “holes,” whether it is unemployment or stimulus checks. The consumer is in a reasonably good position to help with a “snapback” recovery; we’ve got to be careful not to do too much.

I do think the worst of the economic downturn is behind us. What is most important at the moment is the speed at which we’re developing a treatment for coronavirus.

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It’s not going to be easy to get us back where we were until we have vaccines that the public has full confidence in. There is going to be volatility in markets and economic data.

Q - Are you expecting the Federal Reserve to implement yield curve control?

A - It is too early to make portfolio changes based on something as dramatic and draconian as yield curve caps. There is not enough yield to justify the risks of longer duration and going so far out on the credit curve.

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