Dennis Stattman is a senior portfolio manager of the
BlackRock Global Allocation Fund.
What is your outlook for the economy in the second half of the year? Where do you see the Dow Jones Industrial Average, S&P 500 and Nasdaq Composite Index finishing the year? Also, what is your outlook on interest rates?
We believe that the global economic recovery that began in early 2009 will continue throughout 2010, with gross domestic product, industrial production and manufacturing indexes continuing to show improvements across most major economic regions. Although these trends have been broad-based, divergence between developed and developing markets remains pronounced.
In the U.S., Europe and Japan, monetary policy is likely to remain accommodating, while in the developing nations (Asia in particular), monetary policy is tightening as authorities attempt to control strong economic growth, rising wages and signs of consumer price inflation.
We see the Dow, S&P 500 and Nasdaq finishing the year higher from where they are today. In looking at the top 30 companies (by percentage weighting) in the S&P, all are trading at 19 times or less than 2010 earnings, which is relatively attractive to historical valuations.
We believe that short-term interest rates will remain the same, and long-term interest rates will trend higher.
What worries you most about the markets and the economy over the remainder of the year?
The markets and economy have enjoyed extraordinary government support over the past 18 months. We believe that the pace of money creation and deficit spending is unsustainable despite these efforts, and organic growth and private-sector employment are extremely disappointing. The Fed's quantitative easing and expiration of government spending programs, and increasingly hostile rhetoric and threats of tax increases, paint a challenging picture.
Which areas of the equities market look attractive to you?
Currently, the BlackRock Global Allocation Fund is overweight Asian equities at 13% of total net assets, compared with a benchmark weighting of 8%, with Japan being the largest overweight in the region at 6% of total fund net assets. Within Japan, corporate fundamentals are improving. Corporate earnings are benefiting from top-line improvement and massive cost cuts, deflation expectations are easing, and the global recovery and the yen — which has backed off its highs — should benefit Japan's export sector.
In addition, we are overweight Latin America at 3% of fund assets, primarily due to holdings in Brazil, which we see as a beneficiary of growing domestic growth, low labor rates and increasing global demand for their agricultural products and other natural resources.
What one investment-related suggestion would you make to financial advisers?
Be diversified and flexible.
