As a record amount of money flows into the market, Wilmington Trust's Meghan Shue sees a troubling trend.
Shue, who oversees almost $136 billion in assets, is concerned retail investors are rushing into stocks and cryptocurrencies that are high risk and offer few benefits — if any at all.
"It's a little bit of chasing returns in the wrong areas. It's also a little bit of chasing what's already happened," the firm's head of investment strategy told CNBC's "Trading Nation" on Friday. "One thing we have to be careful of is not to extrapolate what we've seen over the recent three months into the future."
Shue's warning comes after Bank of America's latest weekly report found investor inflows hit an all-time high. Its latest data shows $58 billion went into global stocks.
"What we have seen from that Bank of America data are record inflows into U.S. large cap, in the tech sector," said Shue, a CNBC contributor. "But less attention is being paid to areas that we think offer better potential for future returns."
Shue's concerns also apply to speculative assets involved in this year's Reddit-induced retail trading mania pumping up lower quality stocks — as well as bitcoin. As of Friday's close, the cryptocurrency is up about 65% since January 1 and 360% over the past 52-weeks.
"Money is coming off the sidelines and is looking more speculative than it has in years," Shue said in a special note to "Trading Nation."
Rather than piggybacking on areas that have already seen sharp moves higher, Shue urges investors to target economically sensitive stocks, small caps and emerging markets. Her investment timeline is 9 to 12 months.
"There's more room to go in terms of long-term catch-up," added Shue.
In the case of emerging markets, she contends the group typically performs strongly in the beginning stages of global economic expansions.
"You have to have more exposure to cyclicals and value than you did last year," she said.
A market bull, Shue believes the Covid-19 vaccine deployment will accelerate over the next couple of months and help repair the economy faster than widely anticipated.
But she's not ruling out a pullback along the way due to high levels of market euphoria. In that case, Shue recommends buying the dip and going small.
"In the U.S., the top trade is U.S. small cap," Shue said. "If you look at early expansion periods, you tend to see U.S. small cap outperform large by a pretty large margin for a longer period than just a couple of months."