Money managers’ top picks and predictions

April 29, 2015

photo from panel on reading the tea leavesInvestors who came for actionable stock ideas—and thoughts on long-term market trends to ride—got them in spades from a panel of veteran money managers at the 2015 Milken Institute Global Conference. 

Clifton Robbins, CEO of Blue Harbour Group, provided a dose of optimism about the U.S. economy early on, saying, “I can’t overemphasize the confidence I see in the boardroom. People have a spring in their step, they want to do things, they want to build plants, they want to make acquisitions. That, in my experience, has been a good determinant of how the future is going to unfold.”

The panelists for “Reading the Tea Leaves: Markets on the Edge of Order and Chaos” also were mindful of the challenge they face as active money managers in an environment in which so much money is flowing to passive, or index, funds. “Now is when we earn our fees,” said Sarah Ketterer, CEO and portfolio manager at Causeway Capital Management LLC.

She said one area of focus for her firm is Chinese companies involved in construction, road-building and other public works. “We still are fascinated with Chinese infrastructure” as an investment play, Ketterer said, because she expects the government to ramp up spending as a way to underpin flagging economic growth.

Morris Mark, founder of Mark Asset Management, took the opposite tack: He thinks the greatest opportunities in China are companies that can cash in on the growth of the Chinese middle class—names including Nike and Alibaba. “They basically are companies that are structured to benefit from growth of the Chinese consumer.”

Similarly, John Calamos Sr., CEO and global co-chief investment officer at Calamos Investments, said he continues to bet on health care as a “terrific long-term theme” because of aging global demographics and the rise of the middle class in the developing world. Even so, he cautioned, investors have to be mindful of high valuations on some health-care stocks.

Mark advised investors to focus intently on the quality of top managers of companies. He said his goal was to invest in companies in which he feels confident that managers are essentially his “business partners.” He said he was “happy to have Mark Zuckerberg as my partner,” referring to Facebook’s CEO. “We’re trying to find partners who will help us create wealth.”

Robbins said one key area of opportunity is in shares of major companies whose managers are refocusing the business to boost shareholder value. He said he expects to see more “deconglomeration,” pointing to General Electric’s recent decision to exit the financial services business. The idea behind deconglomeration is to unlock what Robbins believes is “a lot of hidden value in companies.”

Moderator Nora Everett, president of retirement and investor services and chairman of Principal Funds at Principal Financial Group, closed the session by asking each panelist for his or her single best idea.

Robbins chose Investors Bancorp of New Jersey, a bank with a “fortress balance sheet,” a “super management team” and the wherewithal to boost stock buybacks and dividend payments.

Mark picked Apple, a firm whose franchise, he suggested, still isn’t fully appreciated by the market even though the company is the world’s biggest in stock market value.

Calamos argued for convertible bonds—fixed-income securities convertible into stock—as a good investment heading into a period of potentially rising interest rates.

As a “lower risk” play, Ketterer chose Scottish and Southern Energy, a utility that calls itself the UK’s “broadest-based energy company.”

Robert Kricheff, senior vice president and portfolio manager at Shenkman Capital, advised building a basket of bonds of leveraged energy exploration and production companies that have been beaten down by the collapse of oil prices.

Mark had one other suggestion for investors: Make sure to regularly get away from the unstoppable torrent of information coming from markets and instead “shut the door and think.”