Ouch, That Hurt

Some market strategists caution against chasing commodities-related stocks, noting that commodity prices, which have pulled back from their mid-March highs, still look expensive.

"A lot of commodities have run up sharply, partly driven by speculative demand," said David Darst, chief investment strategist at Morgan Stanley Global Wealth Management, which is maintaining a 4 percent allocation to real assets such as timber, gold, oil and gas interests. "Longer term, we're fine with these. But on a short-term basis . . . they look a bit pricey."

At the same time, strategists said, investors should not panic and pull money out of battered sectors at what could be the low points.

Jacob said he has been repositioning his fund to have more exposure to smaller tech companies, which he said have been beaten down to the point where they are reflecting the most pessimistic of views. Investors bid up shares of large tech firms in the second half of 2007, but the sector has since fallen because of concern that profit growth will weaken in a slower economy.

"It's become clear that we're entering a recession or in one now," Jacob said. "It's hard to believe that these [large] companies will continue to grow as analysts expect."

Ginny Chong, senior portfolio manager at Laudus Mondrian Emerging Markets Fund, noted that many emerging markets, such as Taiwan, Thailand, Mexico and Egypt, posted healthy gains in the first quarter despite losses in places like China and India, which had seen speculative buying during the double-digit gains of recent years.

"Over the long term, we believe in the fundamentals of emerging markets," she said. "What we've seen is greed in the past and full expectations built in, and now we're seeing the opposite of that, which is fear."

Hester said he has been increasing exposure to multinational companies. Export growth, he said, has been one of the key factors that has held the economy together. The dollar, which has continued its downward trend for six years and hit fresh lows against the euro during the first quarter, has helped fuel that growth.

"They didn't do you a lot of good the first quarter because it was a global sell-off, but I think going forward, looking at where you want to be positioned when this market gets going again, I think it's going to be [in] quality" multinational companies, he said.

As he sorts through the chaos of the first quarter, Chad Deakins, portfolio manager at the RidgeWorth International Equity Fund, said his staff has been emphasizing the ability of companies to produce earnings. Valuation, or the relative price of stocks compared with earnings, is not as important right now in this period of contraction, in which high earnings expectations will ultimately be revised down, Deakins said. "We're looking more at earnings certainty," he said.