NEW YORK, Oct. 4, 2004 (PRIMEZONE) -- At the Fall 2004 Market Outlook & Investment Press Briefing held here last month, eight investment professionals discussed their take on the current market, offered their prognostications for 2005 and discussed their individual investment strategies.
The briefing, held exclusively for New York's financial and investment press, was sponsored by Millennium Media Consulting, a media relations firm with its headquarters in Alexandria, VA. "This event provided a great opportunity to introduce members of the financial media to these dynamic investment managers representing various asset classes and investing themes," said Scott Tanner, Founder and President of Millennium Media Consulting.
Buying Bonds? Consider non-U.S. Treasuries into 2005
At the start of 2004, we were pessimistic about the potential for investment grade bonds as it appeared that the Federal Reserve would remove its accommodating bias, admitted Laura Alter, CFA, Senior Partner and Head of Fixed-Income at Harris Investment Management in Chicago. "We were expecting rates to rise in 2004, but we weren't expecting a disaster," she added. The good news is that the Fed's new found transparency and its measured approach to raising rates is working some sort of miracle on the bond market, and allowing it to trade in a much narrower range, she noted. The bond market has also benefited this year from declining volatility.
As we look to 2005, our forecast depends on whether or not this is a "normal recovery," Alter conceded. Right now there are signs that it is not. "For every step forward, it's a half step back," she said. Consequently, we expect the yield curve to remain steep. We would recommend investors consider non-U.S. Treasuries, such as corporate bonds and asset- and mortgage-back securities, as well as agency bonds. "We believe these sectors will improve from a fundamental standpoint," Alter summed up.
Western Trends Bolster Emerging Markets in Asia
The myth surrounding investments in emerging markets is that they are a source for cheap labor, materials, and products and typically see boom and then bust economies. While all of that is all true, there are other, very good reasons to invest in emerging markets, said Francisco Alzuru, CFA, Portfolio Manager and Senior Research Analyst with Ft. Lauderdale-based Hansberger Global Investors which sub-advises the Harris Insight Emerging Markets Fund. First and foremost is performance. "Emerging markets have out performed the developed markets over the last five years," he explained. That is predominantly due to a global shift in consumption from West to East, particularly in Asia where the demographic equivalent of the "Baby Boomers" -- those who have vast buying power -- have risen to prominence in a long-term structural shift. Auto consumption is especially strong in China's current sizzling auto market where cars are selling for full price, and usually paid for in cash, he noted.
Moreover, many emerging market countries are boasting healthier economies these days, coupled with continued growth rates that are surpassing those of the developed world, Alzuru noted. Accordingly, he is overweighted in India, Korea and Hong Kong/China.
Ending the Dividend Debate
Although some may dismiss the importance of corporate dividends, the proof is in the pudding, said James P. Cullen, President and Founder of New York City-based Cullen Capital Management and Portfolio Manager of the Cullen High Dividend Fund. "One-half of the return of equities over the last 75 years can be attributed to the compounding of dividends," he decreed. Dividends have finally been discovered. "Dividends are no longer a dirty word," he added.
Cullen's high dividend strategy starts with evaluating a company's price to earnings and price to book ratios and looking for high dividend paying companies whose dividends are growing strongly. "The growth of dividends adds to the performance return," Cullen explained. Right now the amount of corporate dividends being paid out is the lowest in 35 years, while corporate earnings are rising. The good news is that the ability of companies to pay out dividends has risen, he added.
Got Mid-Caps?
"The mid-cap sector has had the best return for the last 15 years, but has seen the lowest volatility on a year-to-year basis, according to Ibbotson Associates," said Carl W. Marker, President, Founder and Chief Investment Officer of IMS Capital Management, headquartered in Portland, Ore. The mid-cap sector first blipped onto investment radar a mere 10 years ago and is still underutilized in investment portfolios, he said. Yet this is precisely where you can find the most nimble, flexible and high growth companies, and why mid-cap companies tend to outperform, Marker noted. "They also tend to be the last stocks people give up in a bear market."
Marker explained that his three-ingredient investment recipe combines value strategies with momentum characteristics, to which "seasoning" is added. His value strategy, under which he assesses certain key ratios, allows for a timely purchase of a stock, unlike some value managers that buy too early, then see the stock plunge or end up sitting on dead money, he said. His momentum component allows him to identify companies with positive surprises or events. His secret ingredient is seasoning -- meaning that candidate companies must have been underperformers for 1-1/2 to 2 years. "Seasoning characteristics help us be patient," he commented.
Mining Performance From Roads Less Traveled
"We invest where others fear to tread," quipped John L. Keeley, Jr., CFA, President, Founder and Chief Investment Officer of Keeley Asset Management, a Chicago-based asset manager. That forbidden territory includes bankruptcies, corporate spin-offs, S&L and insurance company conversions, "busted" utilities, and firms trading below book value. Where bankruptcies are concerned, we don't buy the bonds, but wait and buy the new stock after new managers have been put in place, he said. In addition, most of the savings and loans or insurance companies that convert or demutualize are taken over within 3-1/2 years, he noted. As for utilities that have branched off into unknown businesses, where they have too much debt and consequently sell off these businesses, these utilities are subsequently refinanced and they do just fine, he explained.
He also likes to invest in companies that come to market without an underwriter as they tend to trade as orphans without Wall Street coverage. Lack of coverage and selling pressure provides a low-cost entry point, Keeley explained.
A Style Packed with Hands-on Consumer Research
"I can spend a whole day at Lowe's to see what people are buying, what's their reaction...," said Knox Fuqua, portfolio manager of the AAM Equity Fund, based in Charleston, W. Va. "What drives me is seeing what the consumer is purchasing," he added. He will also take a company for a road test by, for example, eating at a particular restaurant then talking to the manager to assess, first-hand, how it is run, he commented.
Fuqua's growth-at-a-reasonable-price investment style includes investing in good companies for the long-term, and hunting down stocks that pay dividends. "I'm not here to find the hottest stock of the day," he admitted. Right now he likes Eli Lilly & Co. which has a strong pipeline of drugs, and Electronic Arts which makes video games for the Sony PlayStation system and is a good way to tap technology through a good consumer play, Fuqua added.
Diagnosis: Biotech Sector Poised for Continued Growth
The biotech, pharmaceutical and healthcare market has seen a roller coaster year so far amid fluctuating oil prices, interest rates and the volatility in worldwide securities. But difficulties have been external and not biotech/pharma/healthcare sector-specific, said Michael Sjostrom, CFA, Co-Founder and Chief Investment Officer of Montreal-based Sectoral Asset Management, and sub-advisor to the Quaker Biotech Pharma-Healthcare Fund. "This is an industry not facing any loss of demand anytime soon," he noted. The sector is being fueled by aging Baby Boomers, unmet medical needs, and ongoing therapies for various diseases, he explained. "I expect earnings for the industry to grow 20% a year for the foreseeable future," Sjostrom said.
He sees opportunities in companies that have either just launched, or are close to launching, new products because R&D risks are reduced as are premiums since the companies have yet to be recognized. He also sees continued M&A activity. "Large pharmaceutical players are looking for new opportunities for growth and looking to buy biotech companies," Sjostrom said. Specifically, he likes Gilead Sciences, which develops HIV medications, just received FDA approval for a new combination drug and has an emerging drug pipeline to treat Hepatitis C, and Celgene which develops cancer therapies, and could generate sales close to $1 billion in 2005.
Tax Optimization is Key For Separately Managed Accounts
"A separately managed account (SMA) is not the entire solution for high net worth investors, but the SMA becomes the core tax piece that communicates with the other pieces," counseled Len Reinhart, President and Founder of Malvern, Pa.-based Lockwood(R), a service of Pershing LLC, a subsidiary of The Bank of New York. Perhaps the biggest benefit that SMAs offer over mutual funds and other investment products is the ability to have customized tax optimization. Within an SMA, a money manager can directly harvest tax losses to offset gains. The typical mutual fund has after-tax returns of between 75% and 80%, but good SMA investment managers should be returning nearly 90%, he noted. "Taxes are absolutely the biggest hurdle an investor has. I tell managers that if you can save the investor from writing a check to the IRS, they will be your friend for a long time even if your performance isn't great," he added.
In addition, another big hurdle going forward is that while SMAs of all sorts are growing in popularity, there aren't enough income-based solutions for Baby Boomers that address their needs beyond the peak earning/wealth accumulation phase of life, Reinhart said. We need to take the positive characteristics of SMAs and find innovative ways to generate future income streams for most Baby Boomers who don't have the safety net of defined benefit pension plans, he rallied.
To obtain more information about any of the mutual funds or companies noted above, or to speak with any of these investment professionals, or learn how your company can take part in a future Millennium Media Consulting media conference, please contact: Scott Tanner at Millennium Media Consulting, office toll-free 866-755-FUND / or 703.519.1922 / cell: 703.627.2417 / e-mail: millenniummedia@msn.com, or SCTanner33@aol.com.