Go long -- on bonds that is.
The way the experts see it, investors are going to have a tough time doing wrong by long-term interest rates in the coming months.
President Clinton's budget, which raises taxes on the wealthy, could stall an economic recovery or trim the federal deficit, which would remove any upward pressure on interest rates, or do both.
So, nine bond experts polled by the Orange County Register, in Santa Ana, Calif., urge fixed-income investors to add to their bond holdings over the next three months. They recommend that bonds account for 89 percent of a fixed-income portfolio, with the remaining 11 percent devoted to cash.
That's a marked turnaround from only three months ago, when the panel recommended selling some bonds to raise cash.
"With inflation remaining at subdued levels and the economy growing slowly, the credit-market outlook is good," said James K. Ho, senior fixed-income officer at John Hancock Mutual Funds in Boston.
As a group, the experts see rates on the 30-year Treasury bond climbing to about 6.3 percent over the next three months, and to 6.55 percent over the next year.
Not surprisingly, the experts urge investors to shift some short-term bonds to longer maturities. Their portfolio devotes 33 percent to long-term bonds (those running 10 years or longer), up from 23 percent three months ago, while whittling short-term holdings to 28 percent, from 40 percent three months ago.
Why the change? Because virtually everyone underestimated the weakness of the U.S. economy. And they overestimated inflation, which remains low.
Meanwhile, some uncertainties in the new president's policies are coming into sharper focus.
It's now clear, for example, that short-term interest rates are headed higher, in part because of Mr. Clinton's plan to finance a larger percentage of the federal deficit with cheaper, short-term notes.
The experts see rates on the one-year Treasury climbing to 3.54 percent in the third quarter, and nearly 3.9 percent in the next 12 months.
Conservative investors looking to do better than 3 percent on certificates of deposit may want to consider high-quality junk bonds. The experts' model portfolio is 26 percent junk, or lower-rated bonds.