2013 Lipper Awards
Bill Riegel: Micro's trumped macro
We think taking on stock risk is reflective of the fact that the risk premiums in the US, in other words, the expected return on stocks in the US versus where bonds are trading. That's a very wide number and it's very-- at historic levels. So what's going on is the investors are reacting to reduce macro fears. Last year we had the fear that Europe would break up that we'd go over the fiscal cliff. You know, any number of other things that go bump in them at night and what they're really looking at this year is they're focused on the micro. Macro is no longer as important in terms of driving returns and that's leading investors to look at the very, very wide risk premiums and they're beginning to come back into the market to take advantage of the relative or attracting this in the US stocks. The expected return on stocks is, you know, our opinion in the mid-single digit range over the long-term and that again relative to fixed income as a very attractive place to be. I think even though you hit new highs on the Dell, on the Russell. You're closed to doing the same thing on the SMP 500, you may well still have good returns of the long term. We think the returns are probably better internationally and that's where we're funding a lot more opportunities and that's where we've been moving money from an asset allocation perspective. Both the developed markets in our opinion and the emerging markets have higher expected long run returns than the US. At this point and time, we're really finding a lot of opportunities in Europe particularly in the financial sector and equally funding interesting opportunities in Japan which has been doing extremely well. We are also very focused on emerging markets but there's really an interesting dynamic that's playing out there in that. It's not quite clear what's going on in China. It would appear as though that economy has beginning to slow down some which is really not what the consensus in ourselves we're expecting and it's having a very depressive effect on emerging market results here today. One way to measure volatility is what's called the Vix which is projected level of volatility in the-- as defined for the options market. And as-- what you're referencing is the fact that, that just went below 12 for the first time. That [unk] of itself is not normally a signal of the markets about the crash any time soon. We saw all through the period 2002 through 2008 exceptionally low periods of volatility for very long periods of time. It is a marker when it gets below 14 that you sort of have to wonder whether or not you're gonna be faced with a correction. And I think we along with a lot of others have been expecting something like that to occur if only because optimizing short-term trading sentiment has gotten so positive. The fact that we haven't seen a correction is the usual thing that happens when a lot of people including myself get a lined with an expectation in the market defies them but just grinding higher and up into the right, so we've now had 10 days in a row where the market has been up every day and we haven't seen that since 1996 and we all know that we got a little volatility in '96 but from that we went to the 2000 peak. So maybe history's playing itself out again. We thought this year was gonna look a lot like last year in terms of total returns. We're close to realizing that in the first quarter so, you know, from here, it's a little bit perplexing. Absolute evaluations are sort of slightly above long run averages econometric activity is been very good and has been surprising to the upside. I think what I would wanna see is a sustained period of earnings revisions before I got whole-heartedly bullish and we have yet to see that. Earnings have been somewhat problematic in terms of expectations had been moving down a little bit and you have to wonder whether given the fact that the dollar has been so strong whether that will lead to another round of negative for revisions because a stronger dollar is usually problematic for multi-national US companies which are big, big component of the US market.
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