Star Fund Managers Can't Agree on Market

Even the savviest money wizards can't seem to agree on the best next bet on the investing horizon.

Maybe it's a symptom of the now-it's-up, now-it's-down malaise on Wall Street.

Last Wednesday, a group of eight fund managers -- all of whom lead funds defined by mutual fund rating service Lipper as "Lipper Leaders" -- met in midtown Manhattan to share their thoughts on investments.

While there was near-universal agreement on the blessings of having avoided exposure to financial stocks recently, there seemed to be little overlap regarding investing ideas going forward.

The eight, who represented a subset of the funds granted Lipper Leader status (which is given to top performers), were:

Stephen Goddard, portfolio manager of the approximately $81 million AFBA 5 Star Balanced FundAFSAX

Dan Chung, portfolio manager of the $2 billion Alger Mid Cap Growth Institutional FundALMRX

Arieh Coll, portfolio manager of the roughly $90 million Eaton Vance Tax-Managed Multi-Cap Growth FundEACPX in Boston

Todd McAllister, portfolio manager of the approximately $1.7 billion Heritage Mid Cap Stock FundHMCAX

Patrick Gundlach, co-manager of the approximately $300 million Marshall Small Cap Growth FundMRSCX

Brian Placzek, portfolio manager of the $1.5 billion Principal High Yield Fund CPHYX

Jeff Knight, portfolio manager of the $2.4 billion Putnam Asset Allocation Growth PortfolioPAEAX

Jeff Markunas, portfolio manager of the approximately $1.3 billion RidgeWorth Large Cap Core Equity FundCRVAX

More Prime Picks From Lipper Leaders

Eaton Vance's Coll is perhaps the most surprising of the group in his view that now might be a suitable time to take a nibble at the financial sector, despite the seemingly constant dribble of news of more bad debts at the big banks.

He points to Annaly CapitalNLY, a firm which makes its money by investing in mortgage-backed securities, as a particularly appealing play.

Because the Federal Reserve has lowered the cost of borrowing so dramatically, Coll says the firm now makes a much bigger spread on the difference between its cost of funds and the yield on the securities it buys.

What that means is likely big profits over the coming quarters, and because the firm is a real estate investment trust, by law it has to pay out 95% of its earnings in dividends. That could mean a dividend yield of over 17% later this year, assuming a $3 per share payout and the current share price around $17, he says.

Coll also believes the bear market in stocks ended March 17, which coincided with news of the Bear StearnsBSC bailout.

That's also the date gold prices, a barometer of all things bad financially, reached their all-time intraday high around $1,030 an ounce before retreating over $100 over the past month or so.

"It's not an accident that the market rallies after a crisis," says Coll. "It's because of all the things the government does, like lowering interest rates and making cash available."

He points to a multidecade history of stock-market rebounds following financial-company meltdowns as evidence of the repeating pattern of stock behavior.

ABFA's Goddard takes the opposite tack. He says that pretty much everything other than financials is looking healthy.

"Most companies have too much capital and don't know what to do with it," he says. "They should be much more aggressively buying back shares, or paying dividends."

He says IBMIBM has been "ahead of the curve" in returning cash to shareholders through such methods.

The aging Baby Boomers should make dividends attractive to investors seeking steady income through their retirement. That should make dividend-paying shares more attractive relative to those showing massive growth in earnings that is not matched by increases in cash payouts.

RidgeWorth's Markunas likes another recently out-of-favor group: technology stocks.

"I think people have gotten scared off by the [lack of] growth after the dot-com bubble burst," Markunas says. "The valuations have become compressed, which means either people don't believe the growth prospects or are suspicious."

That means expectations are now so low that the big names in the sector, such as Hewlett-Packard HPQ, OracleORCL, IntelINTC and NokiaNOK, stand a high chance of beating consensus estimates, he says.

He points to robust cash flow and balance sheets, partly from sales to hot overseas markets, as the key drivers for choosing a relatively high 20% weighting for the sector.