Portfolio Manager Perspectives

Jeff Benjamin

Robeco Investment Management's Feeney still bullish on stocks despite S&P 500's run

Even a slight increase in investor sentiment, he argues, will extend rally

Nov 17, 2009 @ 11:56 am

By Jeff Benjamin

While some investors are predicting an imminent and sustained market downturn, Jay Feeney, chief investment officer at Robeco Investment Management, still sees plenty of upside for stocks. Mr. Feeney, who oversees $10 billion of the firm's $14 billion under management, argues that the economic environment continues to be good for stocks — despite a gain of more than 60% by the S&P 500 since its March lows. Specifically, he believes that as investors start to feel more comfortable about the economy, they will take on more of the risk associated with equity investing, which will further fuel the market's performance. “Valuation is the single most important factor driving stock returns, but investors can get caught up in everything else,” he said. “On balance, most investors still remain wary of the stock market, but I find it hard to believe that the market is overvalued at this level.” According to Mr. Feeney, the equity risk premium, which is the rate of return that investors demand over U.S. Treasuries, has narrowed to about 6%, from 8.5% in March. But the current equity risk premium is still well above the 130-year average of 3.5%, suggesting significant stock market upside potential. “We know that the markets tend to always move in a direction that inflicts the most pain on the largest number of people,” he said.

According to Mr. Feeney's calculations, even if investor sentiment for stocks increases enough to drive the equity risk premium down a single percentage point, the fair multiple for 2010 estimated earnings in the S&P 500 would expand to 17.3, from its current level of around 14.5. That would reflect a 20% gain for the index over current levels.

Mr. Feeney explained that as a bottom-up stock picker, he is not predicting a 20% stock market rally from today's levels, but he is suggesting that even a slight increase in investor sentiment toward stocks will be enough to extend the rally.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives .


What do you think?

View comments

Most watched


Finding your edge from Tony Robbins

Guru Tony Robbins has helped a lot of people, but armed with his psychology Financial Advisor Josh Nelson has helped his practice soar.


Finding innovation in your firm

Adam Holt of AssetMap explains how advisers understand they need to grow, but great innovation may be lurking right under your nose.

Latest news & opinion

SEC sets June 5 date for vote on Regulation Best Interest

Commission adds new item to agenda: Interpretation of broker guidance that qualifies as advice

House passes SECURE retirement bill with massive bipartisan support

The measure allows small employers to band together to offer plans and raises the RMD age. Another provision eases use of annuities in 401(k)s, which critics say goes too far

10 IBDs with the most annuity revenue

Here are the independent broker-dealers that brought in the most annuity revenue last year.

DOL sets date to propose new fiduciary rule

The regulation, expected in December, likely will be contoured to the SEC's new advice standards.

LPL expanding platform to include employee brokers

The largest IBD in the country has agreed to buy a small broker-dealer in Florida to kick off the new effort.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print