Portfolio Manager Perspectives

Jeff Benjamin

OppenheimerFunds’ Steinmetz hot on high-quality stocks, low-quality bonds

Oct 7, 2010 @ 3:55 pm

By Jeff Benjamin

The best opportunities in the market right now are in “high-quality stocks and low-quality bonds,” according to Art Steinmetz, who took over this week as chief investment officer at OppenheimerFunds Inc.

“Right now we’re going through a business cycle of more extreme variations than we’ve ever seen, but the stages are similar to what we’ve seen in the past,” he said. “The market overshot [on the downside] in 2008 and snapped back in 2009, and now we’re at the phase where companies have strong balance sheets and lots of cash.”

Mr. Steinmetz said the record levels of cash held by companies eventually should translate into higher dividends, stock repurchase programs and consolidation, all of which contribute to his preference for higher-quality companies.

On the fixed-income side, he said, “We’re now in a sweet spot for taking on credit risk, because companies are not levering up and the risk of rising defaults in well behind us.”

Mr. Steinmetz, 51, has been with OppenheimerFunds since 1986. He is the lead manager of four fixed-income portfolios with combined assets of $27 billion and is the longest-serving portfolio manager at the company.

Until this week, he was the chief investment officer in charge of fixed income, but an opening on the equity side led to the combining of the equity and fixed-income CIO jobs into a single position.

The former equity CIO, Christopher Leavy, left OppenheimerFunds this week to join BlackRock Inc. as CIO of U.S. fundamental equity.

Of the $165 billion that OppenheimerFunds has under management, about $99 billion is on the equity side and $66 billion is on the fixed-income side.

While Mr. Steinmetz acknowledged he has never worked on the equity side of the business, he explained that, “As a senior manager at the organization I certainly pay attention to the macro aspects of valuation with regard to equities.”

Just as he did as a fixed-income CIO, Mr. Steinmetz said he will have a top-down macro perspective with regard to the equity side of the business.

As part of the management change, the company has also installed veteran money managers as directors of the equity and fixed-income operations.

George Evans, who has been with the company since 1990 and has the second-longest tenure of any of the portfolio managers, takes on the additional role of director for all equity investment teams.

Krishna Memani, a senior vice president who joined the company in 2009, is the director on the fixed-income side.

“These two gentlemen will be responsible for peeling back the lid on all the management teams and will be the guardians of the investment process,” Mr. Steinmetz said.

In a statement, OppenheimerFunds chief executive Bill Glavin said, “Mr. Steinmetz is widely recognized as an innovator in our industry and one of its most successful portfolio managers.”

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.

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