Some Wall Street heavyweights who President Trump dubbed ‘rich guys’ last week may sound alarmed about stocks, but some of the world’s biggest investors are holding on or boosting their holdings.
Money managers and strategists at Capital Group, Franklin Templeton and BlackRock Inc., which together oversee about $8.8-T, say stocks remain attractive even as the threat of a 2nd wave of C-19 coronavirus infections happen at a time when there is no medical solution.
The Big Q: The reasons?
The Big A: We are past the 1st stage of the outbreak, central banks and governments are supporting markets, and shares are appealing compared to other asset classes such as bonds.
“I am cheered by the declining growth rates of new infections and mortality,” said Steven Watson, a portfolio manager at Capital Group who helps oversee about $227-B.
An index of global equities has recouped more than 50% its losses in the medical malpractice chaos, rising into a Bull market from a low marked on 23 March. As stocks continue to recover despite stark outlooks for economies, some iconic investors including Messrs Druckenmiller and Tepper, 2 of the rich guys that are short the market, have said the risk-reward of holding shares is the worst they have encountered in years.
Mr. Watson made few changes to his portfolio, only selling some shares whose “recovery runway” looks long. His optimism has just 1 caveat: central banks will need to provide the monetary responses needed to restart growth. He views Asian stocks as likely to have a stronger run in coming months, given the “relatively bright outlook on the Covid-19 front.”
Franklin Templeton’s multi-asset solutions group, which manages about $123-B, tentatively increased equities in mid-March, moving back to a Neutral position on the asset class just before stocks started to climb.
The Team is betting global equities will outperform bonds until the end of Y 2021, according its head of client services. That is because of the low yields provided by most developed market sovereign debt and expected volatility in bond markets, particularly in credit spreads. It is staying with stocks despite the risk of a 2nd wave of infections.
Looking over the next 12 to 18 months, we are cautiously positive on equities Vs bonds from a risk-adjusted return perspective.
Some are leaning toward “defensive sectors and regions” as it predicts a slow and uneven economic recovery until a vaccine or effective treatment is found.
BlackRock is also sticking with its Neutral weighting on stocks, favoring buying quality stocks across regions. It points to the trillions of dollars pumped in by central banks and governments to contain the crisis.
“We see the unprecedented policy response to cushion the pandemic’s blow as key to support global equity markets against a backdrop of historic uncertainty for activity and earnings,” analysts led by BlackRock Investment Institute Global Chief Investment Strategist Mike Pyle wrote in a note. “We still prefer an up-in-quality stance and like economies with ample policy room.”
We have little cash sidelined, like all the companies we hold, and are perhaps more optimistic than some other money managers.
Have a healthy day, Keep the Faith!