TMCnet News
Experts in N.C. share investment tips for 2011 [The News & Observer, Raleigh, N.C.](News & Observer (Raleigh, NC) Via Acquire Media NewsEdge) Jan. 02--The economy, while showing some signs of recovery, remains shaky. The jobless rate is still high as corporations put off hiring. Governments are strapped and will likely make tough cuts in 2011. Despite the grim reality, stocks finished 2010 on a strong rally. Many investors expect big things again this year as recovery takes hold. To provide an outlook for individual investors, we consulted some pros. These experts in the Triangle and Charlotte help manage billions of dollars and earn good money to make smart bets. We asked them each a series of questions, including the smartest financial move they recommend for 2011, what advice they give people who approach them at cocktail parties, and the best financial advice they received from a trusted mentor. Naturally, if any of the following advice were foolproof, they wouldn't give it away. As always, do your own research, stay diversified and assess your own willingness for risk. Mark W. Yusko Mark W. Yusko manages $10 billion as CEO and chief investment officer of Morgan Creek Capital Management in Chapel Hill Smartest money move: Get as diversified as possible across geographies, sectors, assets, currencies. Outlook for stocks: S&P 500 will decline 10 percent for the year (probably up through summer and then down in fall/winter). Top stocks or other investments: Gold (GLD, GDX, after tough first quarter), Long Treasuries (TLT, contrarian call), Energy & Energy Services (OIH, XLE, after volatile first quarter), bonus pick KKR as play on private equity Red flags: Rising commodity prices, slowing GDP growth, ballooning government budget deficits Key indicators: Unemployment rate; can't have solid growth without creating real jobs Advice for nervous client: If you only buy assets (stocks, bonds, houses, etc.) at appropriate prices (less than the fair market value) you should actually be excited when prices fall, as you get to buy more of a great asset at an even better price. If you feel panic when markets fall, you are in the wrong assets. Sell them immediately and buy something that you understand and that you believe is priced below fair value, something that is "on sale." Investing is the only business I know that when things go on sale, people run out of the store. If you wait to "get even," you will wait a very long time and lose a lot more money. Party advice: Never buy anything that anyone tells you about at a cocktail party. Best advice from a mentor: Be an investor, not a trader. Buy good assets at good prices. There is no investment "good enough" that you can't mess up by paying too much. Eric Teal Eric Teal manages $5 billion for First Citizens Bank Capital Management Group in Raleigh. Smartest money move: Focus on boring U.S. quality companies that have strong free cash flows and solid balance sheets. Outlook for stocks: Historically, the third year of the four-year presidential cycle produces the highest market returns. However, much of the gains have been pulled forward during the second half of 2010. The S&P 500 is pretty fairly valued, and we expect a total return of about 5 percent. During the first half of the year, we anticipate the economic recovery and positive momentum to grind the market higher, to be followed by more inflation worries and interest rate concerns that result in a lackluster second half. Top stocks or other investments for 2011: Stronger GDP growth, higher commodity exposure, and improving balance of payments, should result in emerging markets' continued outperformance and premium to the S&P 500. Despite plenty of problems in the financial system and challenging fundamentals, there is a growing number of indicators that conditions are improving and the credit cycle is turning, a positive sign for banks. Red flags: A key concern for 2011 is the prospect of housing not recovering and breaking to new lows. Inflation concerns in China and the emerging economies result in tighter monetary conditions and a "hard landing" for the Chinese economy. State and local government's fiscal conditions do not improve and result in worsening deficits and defaults. Key indicator: Jobs, Jobs, Jobs. Unemployment is the most important indicator to monitor at this point in the recovery. The economy and confidence will remain very fragile without sustainable job creation. Advice for nervous client: Emotions typically compound investment mistakes. If you still believe in your initial investment, then a lower price makes it only a more attractive buying opportunity. However, do not be reluctant to cut your loss, as quickly as possible, if circumstances have changed. Party advice: Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it. -- Will Rogers Best advice from a mentor: From the works of one of the world's foremost economist, John Maynard Keynes, who once said to investors, "Markets can remain irrational far longer than you or I can remain solvent. " Maceo K. Sloan Maceo K. Sloan manages $2 billion as head of NCM Capital in Durham. Smartest money move: Cash is not where you want to be. We expect short-term interest rates to remain low for the year, providing very little return. Outlook for stocks: The S&P 500 will rise about 12 percent from current levels. Top stocks or other investments: Cree (CREE) is levered to the adoption and growth of LED-based lighting in commercial and industrial applications. Unlike the consumer electronics market, there are only three or four companies in the world that can make LEDs for general lighting. We believe that the company has the potential to increase earnings in excess of 25 percent annually for the next several years, which is above consensus expectations of 10 to 15 percent. Gilead Sciences (GILD) makes HIV drugs and has a best-in-class franchise in a market with high competitive hurdles. Citigroup (C) has more exposure to faster-growing emerging markets than its peers and also less exposure to regulatory issues in the U.S. The company has strong capital and reserve levels, and will soon be free from government ownership as the U.S. Treasury sells its stake. Red flags: inflation creeping up, state and local budget issues Key indicators: Employment growth and corresponding improvement in consumer spending. Corporations have cut costs, which has helped reported earnings, but probably little left to cut. Advice for nervous client: Don't try to time the market. Make investing a regular part of any savings and investment plan, both in good markets and bad. Party advice: Invest only in companies that manufacture products or provide services that you understand and /or use. Best advice from a mentor: Your credit rating starts at birth. Protect it zealously. Kendrick Mattox Kendrick Mattox, CFA at Carolinas Investment Consulting in Charlotte, with about $1 billion in assets under management Smartest money move: I recommend that investors seek active managers who employ flexible mandates, can ratchet the risk levels up and down and have proven to be opportunistic and tactical in the past. Without clairvoyance on the market's behavior in 2011 and beyond, increasing one's allocation to highly flexible managers should be beneficial from both a risk and a return standpoint. Outlook for stocks: We believe the broad equity markets (as defined by both the S&P 500 and MSCI World) still have room to run; maybe even upward of 10 percent to 15 percent. However, the market's future behavior is difficult to predict. Top three stocks or other investments: High quality, clean balance sheet, dividend paying, multinational stocks. For those who feel they need tax-free dedicated income, transition into actively managed municipal bond managers. Asset Rotation or Global Tactical Asset Allocation (GTAA) mutual funds. These funds rotate between stocks, bonds, cash and other asset classes (like REITs, commodities and emerging markets) and have proven that their nimbleness can be rewarding. In uncertain times, investors need a manager who tactically can rebalance their portfolio without being emotional or reactionary. Red flags: Blindly sitting in a municipal bond without conducting detailed credit analysis on such. Key indicator: Corporate revenues (both bottom and top line). The value of a company is ultimately determined by its cash flows and dividends, but dividends are a product of cash flow and cash flow is a product of revenues. If public companies can continue to grow the revenues that support their cash flows and dividends, then investors should continue to have a reason to own them. Advice for nervous client: Design a solid, well thought-out investment game plan that is rooted in diversification and stick with it. History tells use that most retail investors buy and sell at the wrong time. Party advice: Hire an adviser who can help you design, implement and maintain an investment game plan that is tailored to your unique circumstances and preferences. Best financial advice you got from a mentor: Be patient and unemotional. Don Olmstead Don Olmstead, managing director of Novare Capital Management in Charlotte, with assets of $360 million Smartest money move: We recommend individuals remain invested in equities (according to their asset allocation) and sell long-term bonds and long-term bond funds. Our investment committee believes that interest rates will rise and long-term bonds and funds will lose value. Outlook for stocks: The S&P 500 will grind higher by 8 to 10 percent for 2011. Top stocks or other investments: We believe the top three equity sectors will be technology, industrials, and oil and gas pipelines (MLPs). Technology is benefiting from a corporate refresh on software and equipment, mobile technology, and the beginning of cloud computing. Our top picks in this space are Global Payments (GPN), Qualcomm (QCOM) and Intuit (INTU). Oil and gas pipelines have been one of our favorite sectors for many years because of the higher yields or distributions, lower commodity risks, and the continuing demand for energy and pipelines. Our favorite names are Enterprise Products Partners (EPD) and Plains All American (PAA). The industrial sector is benefiting from strong exports due to the weaker dollar and stronger spending on capital equipment. Our top selections in industrials are Ingersoll Rand (IR), Fluor (FLR), and Honeywell (HON). Red flags: We are concerned with job growth and the number of folks unemployed and underemployed, which has a direct impact on consumer confidence and spending. Also, we are keeping a close eye on the European debt crisis and its potential impact on global growth and U.S. growth. We continue to have concerns with U.S. government debt levels and their effect on the economy. Key indicators: We recommend watching the monthly unemployment number, consumer confidence and interest rates, specifically the 10-year Treasury rate. Party advice: Don't listen to stock tips at parties. Be an original thinker who does not follow the herd. Best advice from a mentor: Keep your debt levels low, live within your means, work with trusted advisers and enjoy the journey! Hal Eddins Hal Eddins manages $300 million in assets for Capital Investment Co. in Raleigh. Smartest money move: The economy should finally be able to make a sustained recovery and the market will move up accordingly. A smart shift could be to move a portion of an investor's fixed income allocation into equities. Outlook for stocks: 18 percent increase for the S&P 500. U.S. large cap companies are still quite attractive and they are leaner and more profitable than ever. These attractive valuations coupled with the fact that 2011 is the third year of the current presidential term leads us to believe stocks could enjoy a solid 2011. Top stocks or other investments: Proshares Ultra S&P 500 (SSO), which tracks the S&P 500. I would prefer to buy SSO on a pullback after the strong run of the last few months. We could see such a pullback in mid January. Proshares 20+ Year Treasuries (TBT). As the economy continues to recover, rates will rise and TBT should benefit. BB&T (BBT): We like bank shares in general as they could catch up with the overall market in the coming months. BB&T has repaid its TARP funds and is considered one of the stronger banks. We could see a recovery in BB&T over the coming 12 months, and a potential dividend increase next year. Red flags: I think the price of gold is overvalued. As individual investors begin to reallocate their assets into stocks and other investments that are geared to the economy, gold could suffer. Key indicator: Interest rates. Advice for a nervous client: Put simply, you should always try to be thinking one step ahead. After a big run up in the market, take some of your winners off of the table. That way you will be positioned with cash to take advantage of lower prices if and when the market drops. Party advice: The key is not whether a given piece of news or information is "true." The key is whether that information has already been priced by the market. Best advice from a mentor: Buy quality stocks when no one else likes them. Big selloffs are the most attractive time to buy. Do it with a calm, systematic approach and it can do wonders for both your returns and your piece of mind. Janet Fox Janet Fox manages $70 million in assets through LPL Financial as president of ACH Investment Group in Raleigh. Smartest move for 2011: Investing in the stock markets gradually through "dollar-cost averaging." This involves continuous investment in securities regardless of the fluctuation of price levels. Outlook for 2011: Overall, the markets could see positive results, but there will be volatility. We expect single-digit returns. 2011 picks: Energy or utilities and industrials are good areas with high quality, dividend-paying stocks. Multinational companies with good global growth potential such as Chevron, Coca-Cola, Caterpillar or 3M. 2011 red flags: Rising interest rates and inflation. Advice to nervous clients: If you need the funds or cannot handle the volatility, then it is important that you rethink the investment choice and make the necessary changes to your current portfolio mix. Party advice: Statistics typically illustrate that the turtle wins the race. Investing for the long-term is more beneficial. Best advice from a mentor: It is never too late for someone to start planning and investing. Your return is determined more on the purchase price than the selling price. Janet Cowell N.C. Treasurer Janet Cowell, who manages the $69.7 billion state pension fund, chose not to answer specific questions. But she did offer this advice for 2011: Although we are seeing signs of a slow recovery, it is highly likely that we will still encounter bumps in the road when it comes to investing. Set your financial goals (e.g., saving for retirement, saving for a house) and stay focused on investing for the long term to achieve them. When you are researching investments, seek advice from investment professionals. Many providers offer call center assistance and even face time with financial experts. In my experience, people often don't take advantage of the resources made available to them. Additionally, at a time when interest rates are low and you may not be earning as much on your investment accounts, make sure to take the time to review the fees associated with different investment options. Many folks investing in a plan offered through their employer think that someone has negotiated low fees, but that is not always the case. Typically, mutual funds and exchange-traded funds (ETFs) should have fees of less than 1 percent. To see more of The News & Observer, or to subscribe to the newspaper, go to http://www.newsobserver.com. Copyright (c) 2011, The News & Observer, Raleigh, N.C. Distributed by McClatchy-Tribune Information Services. For more information about the content services offered by McClatchy-Tribune Information Services (MCT), visit www.mctinfoservices.com, e-mail [email protected], or call 866-280-5210 (outside the United States, call +1 312-222-4544) |