Mutual Fund Monday - Beverly Goodman
Bill & Bill's Excellent Bull Signal
Beverly Goodman
12/16/02 - 07:05 AM EST
The stars of 2002's financial news programs aren't the slick CEOs of the
boom years -- they're the more circumspect money managers shepherding their
flock away from the bear's grasp.
But circumspect doesn't mean pessimistic -- some have been almost
outright bullish regarding the equity market. Of course, fund managers, as investors are well aware, have been wrong before. But when one of the most respected equity managers and one of the most respected bond fund managers sound similarly sanguine notes about stocks, even the most discouraged investor may find reason for hope.
Hopeful for 2003
Bill Miller, manager of the
Legg Mason Value Trust fund, which is on track to beat
the
S&P 500 index for the 12th year in a row, has even higher hopes for next year's performance.
"We're positioned with zero cash and are looking at high-beta stocks, which
will lead the recovery," Miller says. (Beta measures the volatility of a
stock relative to the market. High-beta stocks would have greater highs and
lower lows than the overall market.)
Miller points to stocks like
Nextel(NXTL - Cramer's Take - Stockpickr), which he bought early in the
year for $11. By July, it had dropped to $2.50, but since then has jumped to $13 a share, and now represents 6% of the portfolio. "I'm not looking at
technology stocks necessarily; I'm looking at high-beta stocks," he says,
adding that right now just 2% of his fund's assets are in technology stocks.
"But the next rally will be led by technology and telecommunications
stocks, because they're high-beta, high-risk."
And as for the "risk" element, Miller thinks the corporate scandals that so
rocked the technology industry have been fully priced into the overall
market. "The market shrugged off Enron as a one-time event," he says. "But
then there was
Global Crossing,
Tyco and
Adelphia, and corporate governance became more of an issue. But those scandals have now been fully discounted."
Miller dismisses economic data and corporate statements when it comes to his
view of the equity market's immediate future. "The way people think about
the market now is backwards," he says. "Economic releases report on the
past, and companies are only looking at what's happening now. But the market
looks forward."
Indeed, it's the market that determines the economy, Miller says. "We should
look to the market to know what the economy's going to do," he says. "If the
market goes up, the economy will be fine."
As for corporate sentiment regarding today's environment, Miller also sees
positive signs. "We're starting to see some mergers and acquisitions," he
says. "Companies don't buy others in a deteriorating situation; they buy
when they believe we've hit the bottom of the cycle. We're going to see more
and more of that."
Bond Bandwagon Overflowing
For those investors still looking for a reason to get back into equities,
there's incentive in some other surprising places. Bill Gross, who manages
Pimco's $274 billion bond portfolio, stated last week in his latest
"Investment Outlook" for Pimco investors (as well as on
CNBC,
CNNfn and in the
December issue of
Kiplinger's) that treasuries are trading at
too high a premium and individual investors have shifted their portfolios
way too far into bonds.
"There's little doubt from this Bond Man," Gross says, "that the bond
market's salad days are over -- 4% to 5% annual total returns at best over
the next several years should be expected."
That's not to say that the flight out of bonds should rival the flight into
bonds the market saw last year. But there's less incentive to hide out in
the bond market if you believe that the stock market is ready to rally.
