If you are agonizing over where to invest your money, you aren’t alone.
The pros are there with you —nervous about stocks and bonds as clear opportunities become fuzzy in both. As the best and brightest fund managers talked at Morningstar’s three-day conference in Chicago last week, they repeatedly expressed reservations.
They see Treasury bonds vulnerable to the inevitable climb of interest rates, and corporate and high-yield bonds paying so little interest that there isn’t enough insulation to protect investors if the economy suddenly weakens or if investors get cold feet. After the unrelenting climb of stocks since 2009, the pros see a stock market so pricey that stocks appear vulnerable to any bad news for the economy or companies.
But the difference between you and professionals who run mutual funds is that fund managers are hired to do something with clients’ money, no matter what. While sitting on cash rather than stocks or bonds might provide security in an iffy environment, cash earns no interest, thanks to monetary policies designed to get people to choose riskier options. Even though many pros say they are flummoxed by a market in which everything from stocks and bonds to currencies and commodities have all become pricey because of the trillions of dollars’ worth of stimulus poured into the markets by the Federal Reserve and counterparts in Europe and Japan, fund managers are doing what they think they must: deploying money where they can make a case for satisfactory results even though they expect high prices to hold back future gains.
They are emboldened by the fact that prices are high —but not outrageously high.
After all, even though pros have worried about bonds and expensive stocks for months, the Standard & Poor’s 500 stock market index has managed to bestow gains of 5.5 percent this year while bonds haven’t incurred losses. There hasn’t even been a correction (a short-term downturn of 10 percent in the stock market) for 32 months. Such a long stretch without a sizable dip in the markets has happened only four other times, according to David Rosenberg an economist with Gluskin Sheff in Toronto.
Considering the high prices of stocks, some fund managers who specialize in stocks also are holding substantially more cash than usual. Even those scouring the world for investments are having difficulty finding stocks cheap enough to buy.
Dennis Stattman, who heads BlackRock’s asset allocation team, said stocks of large Japanese companies that sell to the world are significantly cheaper than U.S. companies.
European stocks have climbed significantly simply because the “European Central Bank took off the table the fear of banks failing,” Stattman said.
Meanwhile, Michael Hasenstab, chief investment officer for Franklin Templeton global bonds, says two of his favorite markets for bonds have been Poland and Hungary, and he’s comforted that the continuation of stimulus from the U.S. Federal Reserve and counterparts in Europe, Japan and China will power many emerging markets.
Gail MarksJarvis is a personal finance columnist for the Chicago Tribune.
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