Laszlo Birinyi said that he knew in October that it would be hard to make predictions for 2012 when he saw a headline suggesting that markets would rise or fall depending on whether the tiny nation of Slovakia approved a bailout plan for Europe.
Mr. Birinyi, president of stock market research and money management firm Birinyi Associates Inc., said in Bloomberg Markets' January issue that markets are so volatile that it doesn't take a lot to send them reeling.
“There are so many exogenous factors that to try to forecast the market with a degree of confidence is difficult,” he said.
The best strategy for stock investors is to stick with iconic brands, such as Apple Inc. (AAPL) or Ralph Lauren Corp. (RL), and with companies that offer “meaningful dividends” of at least 5%, Mr. Birinyi said.
Investors are operating in an “upside-own” environment, said Jason Pride, director of investment strategy at Glenmede Private Wealth and Investment Management.
They should take less risk in equities and more in their fixed-income portfolios, said Mr. Pride, whose firm oversees about $20 billion.
He is telling his clients to buy high-yield corporate bonds and adjust their stock holdings to emphasize those that pay dividends.
Seeking out
dividend yield also is a theme for Mark Luschini, chief investment strategist of Janney Montgomery Scott LLC, which manages about $54 billion.
Large, high-quality U.S. companies such as Chevron Corp. (CVX) and Microsoft Corp. (MSFT) that have a history of increasing their dividends and substantial free cash flow are the most prudent equity investments, he said.
Dan Curtin, global investment specialist at J.P. Morgan Private Bank, sees one of the best opportunities in high-yield bonds.
He has been moving more of his clients' money into “upper-tier” junk bonds — that is, those just below investment-grade. High-yield, high-risk bonds are graded below Baa3 by Moody's Investors Service and lower than BBB- by Standard & Poor's.
Mr. Luschini endorses that strategy.
STICK TO TOP JUNK
“Don't be a hero by going down into triple and double C's, because if global growth continues to weaken, it's going to make those speculative issues more suspect,” he said.
The smartest approach is to buy high-yield-bond funds or exchange-traded funds to diversify risk, Mr. Luschini said.
High-yield-bond funds returned 1.3% on average this year through Dec. 2, according to data from Morningstar Inc.
Mr. Pride also is telling his American clients to diversify into overseas bonds, cautioning them to buy debt in nations that are fiscally disciplined and raised their interest rates post-crisis, such as Australia, Malaysia and South Korea.
World bond funds rose 2.9% this year through Dec. 2 and emerging-markets-bond funds 2.3%, Morningstar data show.
Above all, in this environment, investment managers should admit their limitations, Mr. Birinyi said.
“While we have a positive attitude, we don't want to go out there and pretend that we know what's going to happen in Slovakia,” he said.
