Even though equities are already riding the stock market's rally since March, they are still too attractive to ignore, according to Margie Patel, who manages nearly $1 billion in two balanced funds for Evergreen Investments.
By overseeing both the fixed-income and equity sides of the balanced portfolios, Ms. Patel evaluates the best way to gain exposure to every company she analyzes. Right now, stocks generally look like the better bet, she said.
“I'm extremely positive on the equity markets for next year,” Ms. Patel said. “People flinch when they hear me say that, but that's because they're not looking forward, they're looking back.”
Ms. Patel has been able to take advantage of the bond market rally by investing in both investment-grade and high-yield corporate debt. She noted, however, that the
dividend yields of some stocks — combined with growth potential — has her tilting toward more equity exposure.
The $300 million Evergreen Diversified Income Builder Fund (EKSAX), which is generally limited to 25% equity exposure, has gained about 31% since the start of the year.
The $640 million Evergreen Diversified Capital Builder Fund (EKBAX), which tends to invest more heavily in stocks, is up about 40% since the start of the year.
The S&P 500 is up about 20% over the same period.
Ms. Patel's emphasis on stocks can be seen in the Diversified Capital Builder portfolio. The fund's equity exposure has climbed to 86%, from 58% in January.
“I think equities are the cheapest asset class right now,” Ms. Patel said. “We've hit an inflection point, where the economy is likely to grow and equity appreciation is likely to continue.”
If the global economy continues to recover, Ms. Patel thinks that industrial companies will benefit from increased capital expenditures and international sales.
The weakness of the U.S. dollar “has bubbled to the top of the list of things to look at,” she said. “The dollar appears as if it is going to be in a mildly long-term negative downturn, and that says to me if I can buy companies with revenues in foreign countries, the foreign currency exchange becomes a tailwind.”
Beyond the next 12 months, Ms. Patel said she anticipates some challenges arising from ever-widening deficits and high tax rates.
Still, she predicted that “those negatives won't be as important as the benefits of the global liquidity.”
