The stock market party is in full swing, and that has some of Hawaii’s investment experts a little nervous about 2011.

Coming off a robust year that saw all the major indexes post returns of at least 14 percent, the four local experts who return to participate in the Star-Advertiser’s 10th annual investment contest are proceeding carefully in anticipation that the rally may have run its course.

"We are cautious," said Norm Caris, a Kauai resident and managing director for institutional sales for Caris and Co. "Too many people that missed the rally are now very bullish on the market."

Caris, who ranked third last year with a 22.5 percent return in his hypothetical $20,000 portfolio, isn’t alone in his thinking.

Two-time defending champion Barry Hyman, private client group vice president for the Maui branch of FIM Group Ltd., said now that the stock market is up nearly 100 percent from its March 2009 bottom, the public is joining the party.

"The economic and stock market winds are undeniably at the backs of stock investors," said Hyman, whose portfolio soared 32.1 percent in 2010. "But now that prices of some stocks have been bid up to, and in many cases above, their intrinsic values, there are risks to blindly investing in ‘the market’ via passive (index) portfolios."

The other participants, Richard Dole, chief executive officer of Honolulu investment adviser Dole Capital LLC, and Dwight Melton, co-founder of the Hawaii Stocks and Options Group, are likewise apprehensive.

Dole, whose portfolio gained 28.8 percent last year, said he expects improved corporate profits, a flight from the U.S. dollar, low interest rates and favorable income tax treatment for investors to continue initially.

"However, with a Republican balance in Congress, government spending might be reigned in," Dole said. "I am concerned that too many market forecasters are bullish today, which makes the market vulnerable to a major correction."

Melton is a three-time contest winner but is coming off a year in which he took last with a gain of 16.3 percent.

"I remain somewhat cautious on prospects in the year to come," Melton said. "My sense is that stocks could still head higher, but that following the noteworthy recovery achieved to date, and the unresolved issues still before us on the domestic and global fronts, the likely path to those higher prices will not be very smooth."

Hyman is beginning 2011 with the five stocks he owned in his portfolio at the end of 2010 — Hong Kong developer Cheung Kong Ltd., cellular telecommunications provider Vodafone, the Cohen & Steers Infrastructure Fund, lifestyle marketer Gaiam and investment management firm U.S. Global Investors.

Sectors he favors this year are selective foreign and global companies in industries including telecommunications, well-managed traditional and alternative energy companies, food and pharmaceutical companies, certain niche retail and service companies, and financial and insurance companies "that have rid themselves of value-destroying liabilities and risks."

Hyman also said to keep an eye on technology if they start using their large cash reserves to pay competitive dividends.

Caris, who picked semiconductor giant Intel among one of his five 2011 picks, is bullish on the tech sector.

"As Intel’s most recent quarterly report showed, servers are strong as business undergoes an upgrade cycle," he said.

He also took long positions in Hawaiian Holdings, the parent of Hawaiian Airlines; and Collective Brands, which owns Payless shoe stores. Caris, however, also has two "short" positions among his picks — Market Vectors Gold Miners ETF, which is a gold miners index fund; and MIPS Technologies, a semiconductor company that he feels is overvalued after a 247.1 percent gain in 2010. A short sale means the shares are borrowed and then sold, with the borrower benefiting if the stock goes down.

Caris foresees the economy muddling along this year because the November elections "made it clear that the country is unhappy with the anti-business rhetoric coming out of Washington."

"The good news is that this has forced the administration into a more accommodative policy stance," Caris said. "The bad news is that several states are in serious trouble, and have chosen to re-elect the politicians that are responsible for their dire economic straits. These are states like Illinois and California just to name a few, and Hawaii would be included on this list as well. Taxes will have to go up for theses states. Also we still have Europe to deal with, and who knows what is going on there."

Dole is sticking with four of the five companies he held at the end of 2010. Those include Honolulu-based Alexander & Baldwin; Newport, a supplier of scientific and technical instruments; pharmaceutical giant Pfizer and Territorial Bancorp, the parent of Honolulu-based Territorial Savings Bank. He also is adding ExxonMobil to the mix, which he said has lagged partially because of depressed natural gas prices that have recently improved.

His favorite sectors for 2011 are manufacturing; depressed financials; commodities, including energy; and technology.

Melton is throwing caution to the wind and investing in index funds which produce three times the movement of the indexes they track. They are the Direxion Small Cap Bull 3X, Direxion Energy Bull 3X, Direxion Semiconductor Bull 3X and the ProShares UltraPro Russell 2000.

Like the other experts, Melton says the tech sector is the place to be this year.