It’s Too Expensive to Be Defensive: Baker

Insurance is a wonderful thing — especially when you need it. But it's definitely not free. In fact, the cost of protecting your assets in the stock market has become really expensive, which is why some investment pros are of the mind that the cost of protection just isn't worth it anymore.

Put another way, better deals are currently available on cyclical stocks, rather than defensives.

"Cyclicals are actually cheaper versus the valuation of defensives, or staples, more so than at any time over the last 15 years," says Simon Baker, founder of Baker Ave Asset Management.

While he readily admits that these more conservative equity picks were all the rage in the first quarter, the "chase for yield" by people bailing on bonds has jacked up the price of these lucrative total-return picks. "All of a sudden they're a lot more expensive," Baker says.

For his money, cyclicals are the place to be and now is the time to be in them. That is, "if you do believe like we do: that the economy is turning around and the global recovery is in place."

He is particularly fond of Q1 laggards, such as material (XLB) and tech (XLK) and would advise investors to also "go along with strong themes," such as housing and its expected benefit to the financial sector (XLF).

"Wells Fargo (WFC) is an attractive name," Baker says, citing its 2.7% dividend yield, 30% market share of the mortgage market and lack of exposure to troubles abroad.

For those who are a bit more aggressively inclined, Baker would consider a ''pair trade" of going long tech (XLK) while shorting the staples (XLP).

"I think we're going to be going sideways for a while," he predicts.