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Pro Investors' Strategy Session for April

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Tony Gleason and Richard Levine, Neuberger Berman Equity Income Fund

After so much money poured into the bond market from 2008 until 2010 due to the financial crisis and market collapse, fund managers like Tony Gleason are beginning to see that reverse as investors go in search of yield.

"People who bought bonds used to say they bought them for safety and income. Now it feels like you can buy bonds for safety or income, but you can't really have both," says Richard Levine, co-portfolio manager of the Neuberger Berman Equity Income Fund (NBHAX). "If rates move higher, the value of those bonds will come down. We'd rather take some equity risk with some chance for appreciation."

For that reason, Gleason and Levine say many clients are fleeing the bond market to the fund, which recently passed $1 billion in assets amid solid performance and investor inflows. Annual returns on the fund's institutional class shares has outperformed the benchmark S&P 500 in each of the past four years.

Due to worries over inflation, the fund managers have been doing their best to prepare for an inflationary environment. Gleason says he and the other portfolio managers allocate the fund's assets across four distinct groups of securities: real estate investment trusts (REITs), utility stocks, convertible securities and other high-yielding stocks. One of their favorite themes is the increased worldwide demand for commodities, including oil, gas, coal and timber.

The focus on timber has brought Weyerhaeuser (WY) to Gleason's attention, especially after the tree-harvesting company announced that it would transition into a REIT.

"What we like most about it is that they are going to being paying out a substantial amount of their cash flow as a dividend," Gleason says. "Second, they have an enormous amount of undervalued acreage that the REIT community wasn't quite aware of. Management is focused on shareholders, there is a nice payout coming our way, and it's a wonderful inflationary beneficiary."

Natural gas, though, is where Gleason sees a big opportunity for investors. Specifically, he's looking to diversified utilities, as he is intrigued about natural gas distribution, like pipelines and distribution networks. Like other market watchers, Gleason points to the nuclear issues Japan is still struggling with, arguing that natural gas will take up the slack that nuclear power is going to leave.

Specifically, Gleason singles out CenterPoint Energy (CNP), which is an electrical distribution and transmission company with exposure to natural gas. The stock currently has a 4.5% dividend yield, which attracted income-oriented investors like Gleason.

"The company has a business model that we think has good long-term growth prospects and the ability to continue raising their dividend," Gleason says. "Good valuation, good management. People hunting in utility land would be well served to get onboard the natural gas growth."

Stock quotes in this article: INTC, WY, CNP, DE, TAP, LOW, TEVA 

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