Can Mutual Funds Invest Like George Soros?
Bernstein says that U.S. companies are increasing profits and gaining market share because of changing cost structures. In the U.S., wages are stagnant, and energy costs are among the lowest in the world. Meanwhile, wages are soaring in China and other emerging markets. Until they develop hydrofracturing and other efficient energy techniques, the emerging markets will pay higher costs for fuel.
Bernstein says that the bull market can last considerably longer. He compares the current cycle to the giant rally that began in 1982. That earlier upturn occurred after a decade when the market went nowhere. Then as economic conditions improved, stocks rose. Until 1987, many investors remained wary, fearing a return to hard times. In recent years, investors have stayed on the sidelines because the economy has seemed weak. Bernstein concedes that there are many economic problems, but he says that stocks can rise as long as conditions are improving. He says that the bull market will continue until the economy is booming and confident investors are bidding stocks up to excessive levels.
Bernstein has 8% of his assets in high-yield municipal bonds. Those were pounded when Detroit's bankruptcy unnerved investors. Bernstein argues that high-yield municipals have become excessively cheap. He says that the sector could rebound and lead the bond markets in 2014. "While investors seem quite wary of municipals, municipal finances are generally getting stronger," he says.
Singer estimates future cash flows of countries, and he emphasizes areas that seem cheap. The William Blair fund currently has 47% of its assets in Europe. Singer says the stocks became cheap as investors worried that Europe could never emerge from recession. Now markets should rise as the European Central Bank continues boosting the economy by holding down interest rates. "Stock prices in Europe are low because investors believe that growth will be nonexistent, and the political environment is uncertain," Singer said.Singer worries that bonds are too expensive. He is shorting bonds from Germany and Japan, betting that their prices will fall. This year the short positions have proved profitable because rates have risen in many countries. When rates rise, most bonds fall. Whether or not Bernstein and Singer hit the mark again this year, the two funds could be intriguing long-term holdings because they provide diversification. Both portfolios have the capacity to climb when typical stock funds fall. At the time of publication the author held no positions in any of the stocks mentioned. Follow @StanLuxenberg This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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