High stock valuations demand a focus on quality in 2020

Stock valuations around the world have risen substantially during the bull market, especially in the US. The higher valuations suggest lower returns going forward and greater risk of substantial drawdowns. As such, we think investors would do well to look outside the US for high-quality value or cyclical stocks, many of which trade at a discount to the broader market. Some of these companies have strong balance sheets, capable management teams and other high-quality attributes but may be undervalued because they are tied to the economic cycle.