INSUBCONTINENT EXCLUSIVE:
NEW YORK: With bond and equity markets from the United States to emerging markets all on pace to lose money this year, investors have not
seen this much red on their screens since 1972, the last time no asset class returned at least 5 per cent
Yet fund managers are finding things to like despite the recent market volatility, which sent the Dow Jones Industrial Average down more
than 2 per cent this week
As they start to position their portfolios for 2019, fund managers, from firms including ValueWorks, Sierra Investment Management and
Federated Investors, say they are looking at sectors that could snap back next year thanks to a combination of more attractive valuations
and a decline in the dollar.
Such a rally in both fixed income and equities markets would not be unprecedented
A 20 per cent decline in the value of the dollar pushed the SP 500 up nearly 38 per cent in 1995, while the US bond market returned nearly
17 per cent the same year following one of the worst fixed-income bear markets in memory
"If you look out at the broader picture, a lot of things are going right," said Terri Spath, chief investment officer at Sierra Investment
Management, citing strong consumer confidence and other economic indicators
"It's easy to make a bull case because the economy is humming along just fine, but the market is nervous because the headlines are really
loud and no one likes the unknown," she said
Part of the yield curve inverted this week when yields on 5- year Treasuries dropped below those on both the 2- and 3-year securities, a
signal that has preceded every US recession in recent memory by between 15 months and 2 years
Yet the long delay between a yield curve inversion and a full recession can still be a profitable time to invest, said Charles Lemonides,
founder of New York-based hedge fund ValueWorks
"I don't buy the thesis that the economy is slowing, but I do believe we are late in the cycle
We're going into a period where investors are getting a little fooled by the headlines and avoiding names that have excitement," he said
As a result, Lemonides has increased his long exposure to companies that have sold off, including battered semiconductor maker Micron
Technology Inc, whose shares are down 37 per cent over the last six months, and iPhone maker Apple Inc, whose shares are down nearly 23 per
cent over the last 3 months
At the same time, Lemonides has increased his short position on defensive stocks like consumer staples companies Clorox Co and Church
Dwight Co Inc, which have benefited from the market volatility
Chad Oviatt, director of investment management at Huntington National Bank, said his firm has been increasing its allocation to US
large-cap stocks in anticipation that declining bond buying by the European Central Bank and a resolution of US-China trade tensions will
derail the rally in the dollar this year
That should improve margins for US exporters
A Reuters poll of 60 currency analysts that ended Dec
5 forecast that the dollar will be weaker against major currencies next year, with most of the declines coming in the second half of
2019.
Linda Bakhshian, a portfolio manager of several value-oriented funds at Federated, said the recent stock market volatility has made
stocks, including Apple, JPMorgan Chase Co, Walmart Inc and Microsoft Corp more attractive at a time when the US economy continues to look
stronger than either Europe's or China's
Low oil prices, continued job growth and strong consumer spending will likely prolong the US economic expansion well past next year, she
"If the markets were to close for the year today, people would go into 2019 thinking that there are more opportunities given the
