Andrew Lucas was elected on Nov. 2 to his first term as a committeeman in the largely Democratic township of Manalapan, N.J., even though he made no secret of his allegiance to George W. Bush.
Lucas believes that Bush's re-election is also likely to have little impact on his day job as a portfolio manager and head of Lucas Capital Management Advisors, LLC.
"Presidential policies in general are given a lot more weight than they deserve," says Lucas, CFA, CFP. And he adds, "Clients are not paying me to be partisan."
The market rally immediately following the election, he says, was one of relief that political uncertainty had ended and that there would be no legal wrangling over recounts.
Like many other professional money managers, Lucas believes that whatever long-predicted effect the Bush re-election might have on investments such as defense or financial services has already been priced in. "I just don't see a huge positive for the market for the next couple of years," he says.
While portfolio managers might be relieved that Bush, with his avowed pro-investor policies, was elected over Kerry, not all are doing backflips for joy.
"We're in an economic recovery, arguably in the later stages of one," says Richard A. Weiss, who manages $7 billion as chief investment officer for City National Bank in Beverly Hills, Calif., a subsidiary of
City National Corp.
. "We're still looking for single-digit returns this year."
Money managers who see mediocre returns ahead for the U.S. stock market are using one or more of these strategies: going defensive with utility, dividend and energy stocks; seeking growth overseas; and relying on alternative investments in such vehicles as private gas or timberland partnerships.
Weiss says the economy could still grow for several more quarters, but he's concerned about a recession further down the road. For the past 18 months, the portfolio he manages has been overweighted in industrials and technology, but he has taken those profits off the table. Now he is looking to utilities and natural resources, investments that typically do less poorly than others in a slowing economy.
Barbara Bruser, CFA, director of equities at City National, cited some of these companies and why they were chosen.
, a San Diego-based energy service company that owns Southern California Gas and San Diego Gas and Electric, has dealt with challenges stemming from lawsuits over the state's energy markets, but the stock price has been rising for the past two years.
, a Chicago-based public utility holding company that includes Commonwealth Edison and PECO Energy Co., is the largest producer of nuclear energy and has very predictable energy growth.
of Maryland owns Baltimore Gas and Electric, but less than 40% of the business is regulated, so the opportunity for growth is good.
In the materials and natural resources area, the bank likes
, a South Korean steel manufacturer and supplier to China;
, an international mining and processing company; and
, which mines low-sulfur coal and has a number of fixed-priced contracts due to expire, so it should be able to take advantage of rising prices.
Lucas, the newly elected committeeman, sees too little chance for growth in the domestic stock and bond markets, given the risks, to keep the bulk of his clients' investments there. After the election, for example, he sold off positions in defense contractors
for sizable gains.
A value investor, he put much of his clients' money in oil and gas limited partnerships two years ago. As a hedge against the gas investments, he found an industry -- the fertilizer industry -- that is negatively correlated, meaning when gas goes up, fertilizer goes down, and vice versa.
The fertilizer industry uses large amounts of natural gas as an ingredient. One of the fertilizer companies in his portfolio is
. Having doubled in price since June, Lucas believes it will perform well when natural gas prices cool, and it currently has a 10% dividend yield.
Among the domestic stocks he still favors are
, a forestry and wood products company primed to benefit from the high national demand for lumber, and
Varian Medical Systems
, whose innovative radiation equipment is used in both the medical and cargo-inspection fields.
Lucas also invests in private companies, private limited partnerships for timberland, emerging markets and puts a small portion of cash in certificates denominated in Australian and New Zealand dollars.
Because of the trade imbalance, he says, "we can't afford to have all our money in U.S.-denominated money. U.S. assets aren't going to outperform the rest of the world."
Zachary Karabell, senior economic analyst for Fred Alger Management and co-manager of the firm's
Alger China U.S. Growth Fund, has a different outlook on the U.S. equity market. He sees a better climate ahead for investors and believes the domestic market is currently undervalued.
The national debt and rising energy prices can be absorbed in stride by the economy, he says, although some industries, such as airlines and domestic automakers, will suffer.
In the energy arena, he likes
, offshore oil rig supplier
He believes that dominant and profitable Internet companies such as
will continue to perform well.
At certain price points, Karabell says,
could be a good investment, as could biotech company
, which has developed promising drugs for psoriasis and lymphoma.
is enjoying big demand for its small tractors in the Far East.
Karabell says the emergence of China as an economic force continues to shape the global system. "We are in the midst of an unusually robust period of economic growth throughout the world, with estimates of 4% to 5% global expansion in both 2004 and 2005," he says. "That, and not the recent election, is what will matter most to companies and drive the markets."