CHICAGO If the scandal engulfing the fund industry wasnt depressing enough, mutual fund managers at the Morningstar Investment Conference were less than optimistic about the outlook for stocks and bonds in the upcoming year.
When executives werent joking about leaping out of windows or slitting their wrists, they were telling packed rooms of the expected hardships to come in the next year when searching for quality investment opportunities.
"Next year is what I refer to optimistically as a black hole," said Jeremy Grantham, co-founder of GMO. "Regardless of your view, you have to play it safe. Last year was the biggest return to risk we have ever seen. This was a risk takers year, [and] this is not how bear markets end."
Grantham noted how markets are often stimulated during the third year of a presidents term in order to favorably build up to the elections. He also indicated that the markets tend to coast during the fourth year, which we are currently in, but that some pain is needed in years one and two of a presidents term so that a third year stimulus is possible.
"This is a flat market," said Bob Rodriguez, CEO and director of First Pacific Advisors, of the equities outlook. "This is the worst Ive seen since 1983." Rodriguez, who is also the portfolio manager of the FPA Capital Fund and the FPA New Income Fund, a bond fund, said that he is very heavily invested in cash right now and that he believes earnings growth is going to decelerate in 2005. Aside from announcing the closing of the FPA Capital Fund, Rodriguez said he is advising clients to expect returns of 5% or less for the next five years. "We are very much cautious. We are anxious about 05 and 06."