Today's Guest: Donald M. Belt, senior portfolio manager, Hefren-Tillotson, Downtown (www.hefren.com)

Does this spring-summer rally in stocks have legs, or is the best probably over for the remainder of this year? Why? Post-bubble environments are notoriously tricky and often contain positive and negative surprises. We believe this characterizes today's markets, which have presented investors long-term (secular) challenges alongside short/intermediate-term (cyclical) opportunities and risks. We expect the current rally in the equity indices to continue with any weakness being short-term and mild in magnitude. In the near-term, we are entering what has historically been a weak seasonal period in the markets, August through September. However, the massive stimulus being thrown at the economy by fiscal and monetary authorities supports our cyclical view of the stock and bond markets. We believe equities will benefit from improved earnings growth and continue to churn higher, while bonds will face cyclical challenges associated with improving economic fundamentals, rising Treasury issuance, and the Fed's re-inflation efforts. It is our view that investors will need to be much more proactive and nimble in the management of their portfolios as opposed to using the indexing and passive strategies successfully employed in the last decade.

What market sectors look good for the next few years? We believe emerging market equities remain one of the most attractive investment opportunities in the global equity markets and are in a period of secular outperformance vs. developed markets. Our enthusiasm toward the sector is supported by cheap valuations, a multiyear decline in the U.S. dollar, leverage to an improvement in global leading economic indicators and the advance in commodity prices induced by the development of China's industrial economy and infrastructure building.

Any specific names? For individual investors, the best way to gain access to the emerging markets is through a diversified mutual fund. Emerging market mutual funds that are on the Hefren-Tillotson Preferred Fund List include American Funds New World Fund (NEWFX), Templeton Developing Markets (TEDMX) and Oppenheimer Developing Markets (ODMAX).

Are bonds passe? While our outlook is cautious for bonds on a cyclical basis, we believe that they are a critical component to a properly allocated and diversified portfolio. We continue to favor high-yield bonds and believe that the sector is approaching its final leg higher, which will be driven by corporate debt refunding. The secular downturn in the U.S. dollar remains solidly intact, supporting our allocation to foreign bonds. In our view, foreign bonds continue to offer attractive risk reduction at the portfolio level and a hedge against policy mistakes surrounding the U.S. economy. While investors should expect returns from domestic investment grade bonds to approximate current yields, they will continue to provide diversification benefits in the context of a balanced portfolio.