Next big move for S&P 500 is down, Sierra's Wright says

Next big move for S&P 500 is down, Sierra's Wright says
Fund manager believes 15% plunge may be coming; a recession, to boot
APR 07, 2011
By  Bloomberg
The stock market has become rich with too much “frothy optimistic sentiment,” which is not good for equities, according to David Wright, manager of the $560 million Sierra Core Retirement Fund Ticker:(SIRAX). The fund, which invests in exchange-traded funds and open-end mutual funds, has a sparse 10% weighting in domestic equities but maintains a broadly diversified bond allocation. “It is not normal for us to be this low in equities, but we think the global markets are probably in the process of turning downward for a multimonth or even multiquarter period,” Mr. Wright said. “We don't think the S&P 500 has another 15% upside; the next 15% move will be down.” Mr. Wright, a managing director of Sierra Investment Management Inc., has been heading the quantitative strategy for 20 years, but the mutual fund version was launched in December 2007. “We are tactical and we look at dozens of asset classes,” he said. “There is no fixed asset allocation, and I never bought in to modern portfolio theory.” The strategy relies on moving averages and other trend patterns to determine how to allocate assets. Sell decisions are typically set to specific loss signals and limits. The fund, which enjoys broad flexibility to invest across multiple asset classes, has an almost 50% weighting in fixed income, including an 8% allocation to municipal bonds. “Muni bonds have the most potential of any bond category right now,” Mr. Wright said. “They were punished by the [recent] emotional sell-off, but they are already up 3% off the lows and we expect a 6% to 8% total return from muni bonds over the next three or four months.” The fund has just 2.5% allocated to commodities, but Mr. Wright plans to increase that allocation with new inflows as well as from the 6% he has sitting in cash. “Right now, we're sort of hoarding cash, waiting for the dollar to turn up,” he said. The fund is currently positioned for a rising dollar, a recovery by muni bonds and rallies by commodities and high-grade bonds. The list of equity risks is long, according to Mr. Wright. “The economy will soften with the [upcoming] end of quantitative easing, and corporate earnings comparisons will start to disappoint investors,” he said. “Plus, the real estate sector is going to be down another 8%, and all this means we could be in a formal recession by the end of the year.” 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.

Latest News

'Bogged down' advisors just want to have fun (again)
'Bogged down' advisors just want to have fun (again)

Jim Cahn, of Wealth Enhancement Group, lifts the lid on his firm's partnership model, his views on RIA M&A, and the widely slept-on reason why advisors are merging into larger organizations.

Vestwell unveils new emergency savings account offering
Vestwell unveils new emergency savings account offering

The fintech firm is cementing its status in the workplace savings space with its latest ESA offering, which employers can integrate into their existing benefits package.

'Money Mimosas' and other ways to show your Valentine financial love
'Money Mimosas' and other ways to show your Valentine financial love

Wealth managers offer unique ideas for couples to grow closer emotionally and financially.

Limra research finds financial confidence on the rise among Black American workers
Limra research finds financial confidence on the rise among Black American workers

Survey findings suggest increased sense of financial security and more optimistic 2025 outlook, while highlighting employers' role in ensuring retirement readiness.

DOGE efforts sideswipe muni bonds backed by federal lease payments
DOGE efforts sideswipe muni bonds backed by federal lease payments

Falling prices for some securities within the $4 trillion state and local government debt market spotlight how the push to shrink spending is sending shockwaves across the US.

SPONSORED Record growth: Interval funds emerge as key players in alternative investments

Blue Vault Alts Summit highlights the role of liquidity-focused funds in reshaping advisor strategies

SPONSORED Taylor Matthews on what's behind Farther's rapid growth

From 'no clients' to reshaping wealth management, Farther blends tech and trust to deliver family-office experience at scale.