Take Five with Dorothy Weaver of Collins Capital Investments

Dorothy Weaver, chief executive and co-founder of Collins Capital Investments LLC, describes herself as “pragmatic” regarding the financial markets and the state of the U.S. economy. “I'm not bullish, but the macro market reactions are becoming less so, and that is positive, but we're still in a slow-grind economy,” said the former chairman of the Federal Reserve Bank of Miami. Ms. Weaver, who specializes in using third-party managers to build alternative-strategy portfolios, thinks that the Fed's extended quantitative-easing policy has helped financial assets but has done little for actual economy. InvestmentNews: Have the financial markets already factored in the impact of a reduction in the pace of quantitative easing or will markets react when tapering starts this month? Ms. Weaver: I do think it has already been factored in. There will be no surprise from the markets. We've had plenty of guidance on this. The only question is not if but when, but even that is not within a huge range. InvestmentNews: It now looks as if Janet Yellen likely will be the next Fed chairman, replacing Ben S. Bernanke after Lawrence Summers took himself out of consideration. Is that a positive or a negative for the financial markets? Ms. Weaver: The markets will anticipate continuity and a continuation of the current policy. The uncertainty came more in terms of what Larry Summers would do, so the markets were trying to read the tea leaves based on what he said at different times in different environments. The other issue coming up is not just a new head of the Fed, but there will also be some changes in terms of Fed governors. The whole composition of the Fed will change. Two things that will become more interesting are how the composition will change and what her management style will be like. Will her policies be collaborative or will they be more chairman-driven? InvestmentNews: What are the biggest risks in the financial markets? Ms. Weaver: Obviously, geopolitical is always a wild card. But if there's gong to be anything really disruptive, it will probably be something we haven't even thought of. And we've been living for last five years with all sorts of knowns. It's not like we've had a shortage of known challenges facing the world economy. But to the extent they're known, you don't get the whiplash. With Fed policy, we have had a decoupling of financial assets from the real economy. Financial assets have clearly been the beneficiary of the Fed policy. But when you look at real economy in terms of job creation and wages, you're not seeing the benefit of the Fed policy. You have liquidity out there, but it's not being translated to jobs, [research and development] or new equipment. It's not being InvestmentNews: What are the biggest challenges facing the U.S. economy? Ms. Weaver: There are several, and one is the issue of high unemployment. We're going to have to live with higher unemployment because of the gap between skilled and unskilled workers. Even as manufacturing is coming back to the U.S., the jobs are not. What used to be human labor is now being replaced by robots and machinery. A lot of the more entry-level jobs are just not coming back. It's an enormous challenge. College grads not able to get a job has social as well as economic impacts. It's not just an inconvenience, but it will have a dramatic social and psychological impact on that generation. Another challenge is managing the perfect balance of not entering an inflationary cycle. And there is also the new reality for most people that the safest part of their portfolio is now the least safe. I'm talking about bonds. Investors are readjusting to where they're going to find yield. InvestmentNews: What are the best investment opportunities heading into the fourth quarter of the year? Ms. Weaver: The best risk-adjusted opportunities are finding idiosyncratic situations and not expecting the rising tide to lift all boats. Right now is the time to look at individual stocks and bonds. It will be more one-by-one, case-by-case. And you should be looking for managers who are willing to work more actively. There will be interesting corporate activity with [mergers and acquisitions] and stock buybacks. There will be opportunities, but they will be one-off rather than going with the index. And they will be both long and short, and some will come from smaller, more nimble managers.