In a time when nothing is moving and the inertia of opposing forces has left the markets relatively stagnant, patience is a virtue.
In a time when the ebb and flow of stock prices generally reflects the tide of a placid lake, mutual fund portfolio managers must rely more on their vision of the long run than the immediate and risk-driven nature of stocks in a more volatile market.
In a time of flat market, neither the ascending bull nor the descending bear can help managers successfully judge the quality of their stock picks.
At the recent Sun Star Market Outlook Conference of Lipper Leaders winners, fund managers of every ilk laid out their theories of how value has rightfully stolen the spotlight from growth. But despite the agreement on value, each manager had a very distinct way of handling the market.
Recalling the 1970s
Eric Barden, a young, low-key portfolio manager of the Texas Capital Value and Growth Fund at Austin-based Texas Capital Value Funds, has enjoyed an impressive 26% percent annual return over the last three years with his fund and said that the industry is in a market similar to that of the period between 1966 and1982, just before the boom of the 1980s.
According to Barden, over the last five years, the S&P 500 has been down 4% annually, there has been no money made by large-cap funds and the broader market has taken over, a trend very similar to the 1966 -1982 era.
"Today's stock averages don't reflect the performance of the average stock," Barden said. "While the S&P has been down over the last five years, the average stock is up 5% to 10%."
He added that while value is the wise choice today, it must be pursued with the recognition that future growth is valuable to good stock picks. To Barden, in other words, value and growth are not mutually exclusive.
Diane Jaffee, manager of the Laudus Balanced MarketMasters Fund at Laudus Funds in San Francisco, believes that the mantra for managers should be "search for value, but be poised for growth."
She agreed with Barden that today's market does indeed resemble that of the 1970s. War, an energy crisis and a looming political crisis parallel the eras, she said. Those factors have combined to produce an extended value cycle.
Baby Boom Boost
John Schmitz of the Fifth Third Strategic Income Fund at Cincinnati-based Fifth Third Funds, called for a high, stable income stream. Protect capital in a down market, he said, and participate in an up market.
Schmitz added that there are currently about 15 elderly per 100 people and that ratio will soon rise to 25 elderly per 100 people, due to aging Baby Boomers. He believes that as the retirement population grows, investment managers should be less yield-oriented and more consistency-oriented.
The event's resident contrarian, Douglas Eby of The Torray Fund at the Bethesda, Md.-based Torray Funds, said that investing in business without paying hard attention to the market is the way to go. Reflecting his firm's long-term investing philosophy, Eby noted that there are businesses that are steadily performing, trends are starting to slow and managers should not take cues from the overall market.
In the end, the prevailing theme of the conference was "value over growth," although in today's market it's becoming increasingly clear that those words mean different things to different people.
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