The U.S. economy could well be headed for another downturn — and advisers should be helping clients find opportunities overseas and in alternative-asset classes, two well-known investment managers said Tuesday.
Speaking at the InvestmentNews Retirement Income Summit in Chicago, Robert Arnott, chairman of Research Affiliates, and Dennis Stattman, managing director and senior portfolio manager of the
BlackRock Global Allocation Fund, sounded a clear warning about America's economic prospects.
“There's a better than 50% chance that we will see a second dip in the economy,” Mr. Arnott cautioned. “The market is not pricing that in.”
Both investment managers were stark in their criticism of the world's largest economy. Both pointed to America's crippling debt, its dwindling labor force, and the sizable imbalance between consumption and production.
“Our basic problem as a nation is that we're essentially consuming beyond our means,” Mr. Stattman said. “We're not producing enough with respect to what we spend. Until we get production moving up in line with consumption, we are building a bigger and bigger problem.”
He added that U.S. investors are living in an “artificial” world of zero-interest rates. “It's pulling down the short end and long end of the yield curve, and keeping interest rates lower than they would otherwise be. It's probably pushing stock prices higher than they otherwise would be. This leaves markets vulnerable to a correction.”
Advisers' best chance to make a profit for their clients is to look beyond the U.S. for investments, both managers stressed.
Mr. Stattman's Global Allocation Fund, for example, was overweight Russian and Japanese equities in the first quarter, and underweight European and Australian stocks. He favors emerging-markets debt as well, according to fund literature.
“If I had to give you just one message,” Mr. Stattman said, “it would be, ‘Open your mind to a very broad set of investments, especially geographically.' Because that's where the wealth is, that's where the growth is, that's where money is going to be made to an increasing degree over the next five, ten, 15, and 20 years.”
Mr. Arnott, who is a subadviser to the Pimco All Asset Fund, which competes with Mr. Stattman's, finds opportunities in global bonds and stocks, real estate and commodities.
“The opportunity to buy commodities and the opportunity to buy emerging-markets stock and bonds could be a generational opportunity,” if the markets do, indeed, have a relapse, he added.
Both men see an austere future for retirees, especially those who haven't saved enough, and who limited themselves to more traditional investments.
Mr. Arnott said advisers need to convince clients to ratchet down return expectations to reasonable levels and boost savings and investments.
That way, he said, “they can be prepared to weather the storm.”
