Laszlo Birinyi says he knew it would be hard to make predictions for 2012 in October, when he saw a headline suggesting that markets would rise or fall depending on whether the tiny nation of Slovakia approved a bailout plan for Europe.
Birinyi, president of stock market research and money- management firm Birinyi Associates Inc., says markets are so volatile that it doesn't take much to send them reeling, reports Bloomberg Markets magazine in its January issue.
“There are so many exogenous factors that to try to forecast the market with a degree of confidence is difficult,” Birinyi says.
The best strategy for stock investors, he says, is to stick with iconic brands, such as Apple Inc. (AAPL) or Ralph Lauren Corp. (RL), and with companies that offer “meaningful dividends” of at least 5 percent.
Jason Pride, director of investment strategy at Glenmede, a Philadelphia-based private-wealth and investment management firm, says investors are operating in an “upside down” environment. They should take less risk in equities and more in their fixed-income portfolios, says Pride, whose firm oversees about $20 billion. He's telling his clients to buy high-yield corporate bonds and adjust their stock holdings to emphasize those that pay dividends.
Seeking out dividend yield is also a theme for Mark Luschini, chief investment strategist of Philadelphia-based Janney Montgomery Scott LLC, which manages about $54 billion. Large, high-quality U.S. companies such as Chevron Corp. (CVS) and Microsoft Corp. (MSFT) that have a history of increasing their dividends and substantial free cash flow are the most prudent equity investments, he says.
‘Upper-Tier' Junk
Dan Curtin, global investment specialist at J.P. Morgan Private Bank, sees one of the best opportunities in high-yield bonds. He's been moving more of his clients' money into “upper- tier” junk bonds -- that is, those just below investment grade. High-yield, high-risk bonds are graded below Baa3 by Moody's Investors Service and lower than BBB- by Standard & Poor's.
Luschini endorses the strategy.
“Don't be a hero by going down into triple and double C's, because if global growth continues to weaken, it's going to make those speculative issues more suspect,” Luschini says. The smartest approach is to buy high-yield bond funds or exchange- traded funds to diversify risk, he says.
High-yield bond funds returned 1.3 percent on average this year through Dec. 2, according to data from Morningstar Inc.
Pride is also telling his American clients to diversify into overseas bonds, cautioning them to buy debt in nations that are fiscally disciplined and raised their interest rates post- crisis, such as Australia, Malaysia and South Korea.
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World bond funds rose 2.9 percent this year through Dec. 2 and emerging-market bond funds 2.3 percent, Morningstar data show.
Above all, in this confusing environment, investment managers should admit their limitations, Birinyi says.
“While we have a positive attitude,” he says, “we don't want to go out there and pretend that we know what's going to happen in Slovakia.”
--Bloomberg News--
