DALLAS - Have you thought about investments in cement companies in China or Ghana?
Those represent the type of possibilities Paul Bouchey, the managing director who leads the research team at the structured portfolio management firm Parametric, and Scott Clemons, the chief investment strategist for Brown Brothers Harriman, consider when they evaluate opportunities and risk taking. The two spoke on a panel at Bob Veres Insiders Forum on Sept. 18 in Dallas, Texas
Bouchey and Clemons both say they believe the emerging economies in the world are where equity opportunities are to be found. Clemons says he believes that despite concerns that those markets are overdone. Meanwhile Bouchey says he looks particularly at the smaller countries in those emerging market equity opportunities.
Kathleen Gaffney, a vice president of Eaton Vance Management, who served on the panel with Bouchey and Clemons at the conference, agreed that risk taking had become a necessity of sorts since investors have 2008 imprinted on their minds. Therefore, previous correlations about the markets performance in an economic recovery are not going to work, she said. Advises Gaffney, "Risk taking will be an antidote, to that change.
In contrast to her fellow panelists, Gaffney favors U.S. equities and in particular some in Europe, because those economies have lagged in the worldwide recovery and therefore offer risk takers opportunity now.
Asked how he manages such risk as found in emerging economies, Bouchey, whose firm advises only on equities, says his formula relies on the simple notion of opposites. If everyone loves Brazil, he makes sure portfolios have plenty of that but investments in Egypt, a country with a more dubious outlook, too. Thats what we do. We look at what is underweighted, Bouchey says. That theory works because the portfolios he helps structure have thousands of stocks. For an individual investor, with possibly only 10 stocks, Bouchey warns, such an approach could easily blow up.
But Clemons warns that now is the time to get clients to focus on rebalancing portfolios, even though the markets are humming. You cant wait until a crisis, people are comfortable with their returns now but now is when you have to educate them, he says.
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