Asset managers look back to see what’s ahead
By J.M. Berger
Clouds continued to hang over the global economy. But the all-star investment managers who assembled for the Carroll School of Management seventh annual Finance Conference on June 7 were bullish on silver linings. (l–r: Roch Hillenbrand, David A. Antonelli, Steven M. Barry, Mario J. Gabelli, and Kevin Rendino)
“For the last 10 years, we’ve seen returns of about 4 percent analyzed in terms of world equities,” noted Roch Hillenbrand, managing director of Stony Brook Investments, LLC. “For the last five years, that’s been zero for U.S. equities.”
At the same time, price-to-earnings ratios have tipped significantly in favor of investors over the past 12 years, said Kevin M. Rendino, managing director and senior portfolio manager for BlackRock. Too many people fixate on the current downturn as a harbinger, Rendino told a crowd of some 200. Back in 2000, they made the same mistake, he said. “I’ve never found valuations more attractive than I do today.”
“While this is a very uncertain world today, it’s very funny how certain that world was back then,” Rendino continued. “We were going to have 20 percent growth in the S&P 500 for the next 20 years. The economy was going to grow at five percent. And the only thing to own back then was dot-com … And everybody was 100 percent certain of that.”
Rendino and the other conference panelists said their equity portfolios were currently outperforming the markets—in part because they used their clout as shareholders to keep their companies focused on fundamentals. “We’re owners of businesses,” he said. “People hire us, we hire CEOs.”
The challenge is to pick solid companies with strong leaders, observed Mario J. Gabelli, chairman of GAMCO Investors, Inc. “The approach is not complicated,” he said. “What’s going to happen in the next 10 years? What are the companies that are positioned to take advantage of that?”
Most panelists agreed, however, that the macro environment presented significant challenges, and that political gridlock on economic policy was particularly problematic.
“It’s difficult to come to an agreement unless there’s a crisis, unless something forces the hand of not just the politicians but the people they represent to step forward and say, ‘OK, I understand, I get it’,” said David A. Antonelli, vice chairman of MFS Investment Management.
Those on stage came down strongly in favor of investing in equities, but a number of questions from the audience focused on gold, considered the ultimate safe bet.
“The way to conceptually understand the role of gold in an overall risk-tolerant portfolio is that it provides a financial asset insurance policy,” said gold expert S. Joseph Wickwire, portfolio manager at Fidelity Management & Research Company.
An insurance policy can be important for a portfolio but it can’t be its core asset, he said. Wickwire said Treasury bonds, considered another safe investment, will be hard-pressed to maintain their value when the economy eventually recovers, bringing spikes in inflation and interest rates.
“I’d be very, very, very leery of having a massive part of a portfolio in U.S. long-duration Treasuries when you know policymakers are praying to God, they’re trying everything they have to get inflation back in the system,” he said.