A candid chat with Bob Doll, chief equity strategist at
Nuveen Asset Management and one of the most experienced sages on Wall Street. He's got 36 years of experience in
portfolio management, and has been the top strategist at Merrill Lynch,
BlackRock and OppenheimerFunds
Mr. Doll addresses his 10 predictions for the year, why he thought Donald Trump would win the White House, how his active funds beat the market, why stocks will outperform bonds, and what he's reading this summer.
InvestmentNews: Every year, you produce a list of 10 predictions for the coming year. What did you get most right, and what did you get most wrong?
Mr. Doll: The one we've gotten most wrong is the sector call. (He predicted that information technology, financials and telecommunication services would outperform energy, materials and utilities.) We had a rally in energy and materials off the low, and the financials have yet again disappointed. I thought we had bottomed and banks would do better.
On the right side, it was that stocks beat bonds again, using the Standard and Poor's 500 stock index and the Barclay's Aggregate Bond index. A few weeks ago, we looked like fools, but now stocks are getting out their trading range and hitting new all-time highs with good breadth.
InvestmentNews: How do you feel about your prediction of a White House victory for the Republicans?
Mr. Doll: Like many, I expected Donald Trump to fade. You know the rest of the story. Trump has big issues, massive negatives. Hillary has massive negatives. I thought that if Republicans nominated virtually anybody, they would win. But when you nominate the guy with the biggest negatives, many people will vote for who they consider to be the lesser of two evils. I think Republicans will keep a majority in the House. It's a tossup in the Senate.
InvestmentNews: Your three Nuveen funds have gotten four-star overall ratings from Morningstar. Do you have a favorite?
Mr. Doll: Well, different strokes for different folks, but I like the large-cap core fund — give me the plain vanilla. It's designed to beat the market and it has beaten the index funds. Active managers can win, and if you add it to my long-term record prior to Nuveen, I've beaten the market most of the time and over time, but not all the time. It's about 1.5 percentage points of outperformance annualized. The equity market neutral fund is an absolute return fund, and the
dividend is kind of a tweener between the large-cap core and the market neutral fund.
InvestmentNews: What is it going to take to get bond yields up towards a normal range?
Mr. Doll: If borders were closed for financial flows, 10-year Treasuries would be at 2.5%. The tail wind to bonds are the negative rates and low rates around the world. If investors in Germany can't get a positive return from their bonds, they can buy a 10-year Treasury. The rest of the world has to come off its negative rate kick. It's been a bad experiment, and caused people to be more risk-adverse than the other way around. On the other hand, how often do you get the S&P 500 with a more than 50 basis-point yield advantage over the 10-year Treasury? Not very often, and it's usually at the front end of when stocks outperform.
Going forward, I think stocks will beat bonds, but bonds are going to lose money. You might have stocks flat and beat bonds. It's a relative story. I'm not pounding the table, because stocks can only go up if earnings go up. Stocks have been flat for six quarters because earnings have been flat.
InvestmentNews: What's the most recent book you've read that isn't about finance?
Mr. Doll: Good to Great in God's Eyes: 10 Practices Great Christians Have in Common, by Chip Ingram and Bob Buford. It was recommended by a pastor friend of mine. It's about what great Christians do that makes them great in God's eyes — read good books, pray big prayers — that sort of thing.
