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INVESTMENT OUTLOOK: HOW TO GET AHEAD : INVESTMENT STRATEGIES : PICKS OF THE PROS : Strategies Vary From Thai Stocks to Long Bonds, but Experts Agree It’s a Time to Be Cautious

What do investment experts expect to happen in 1989 and what are they planning to do? Free-lancer writer Michele Lingre interviewed various professional money managers and others to find out. Excerpts of their comments follow:

James P. Owen, managing director of Los Angeles’ NWQ Investment Management, which manages $1.5 billion in assets for such clients as Directors Guild of America and Unisys. :

“Now is a time to try not to lose money, as opposed to maximizing returns. The problem today is that things are too good; the trend is not sustainable. You have unemployment at a 14-year low, the economy growing on eight cylinders, factories operating at or near capacity. What we are seeing is the sober realization that the Reagan economic policies created excesses which the new Administration is going to have to deal with, or the market forces will make the Administration and Congress take steps.

“Therefore, our investment posture is cautious: We’ve had substantial cash reserves all year and until recently, the return of Treasury bills wasn’t much to write home about, but that’s changing very quickly.

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“We have classic defensive stocks: drugs and food companies. They tend to do well whether the economy is expanding or contracting. It’s also an area where you find wonderful valuation. Our stocks also come from export and dollar-sensitive areas, companies like Caterpillar. We would avoid consumer-related issues like auto and housing.”

Robert M. Raney, managing director and chief investment officer for U.S. Trust Company of California. It manages $500 million in assets for such clients as Magnetek and Occidental College.:

“Some things make us nervous, like the trade and budget deficits. You wonder, given the split between Republicans and Democrats, will there be a gridlock in Washington? Can they get something done on the deficit? We need to curtail our standard of living as a country, and that means shrinkage of the economy.

“Currently, we are 40% in common stocks, 40% in intermediate-term bonds and 20% in cash equivalents, mostly one- or two-year U.S. Treasury obligations. We are likely to stay there for now. For stocks, the area of strength continues to be the capital goods which have benefited from a lower U.S. dollar, stocks like Emerson Electric and General Electric. IBM looks cheap. Intel and Digital Equipment, if they go down a bit further, might be tempting.

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“Our next move in terms of asset mix would be to extend the maturity of our bond portfolios. If interest rates go up--the Federal Reserve is likely to continue a strict monetary policy for some time--we may have an opportunity.”

Joan Bavaria, president of the “socially responsible” investment firm Franklin Research and Development in Boston. The company manages about $155 million in assets for, among others, Consumer United Insurance Co. in Washington and All Saints Parish in Boston :

“Right now 45% of our money is in stocks, about 40% is in bonds--municipal or government agency bonds with in an average maturity of five years--and the rest is in cash and loan funds.

“Our clients dictate to us what they want to avoid. Some of them are not interested in the defense industry, others are trying to avoid South Africa or nuclear activities. Most are not interested in investing in companies that have had problems with labor or environmental violations.

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“We expect very soft earnings in the last half of 1989, so we are looking for companies with good earnings predictability. Wellman Inc. or Safety-Kleen--two recycling companies--go right through any kind of economic downturn. Some of the sectors that look pretty inexpensive to us at this point include regional banks. Probably we will continue to be invested in selected utilities next year: Southwestern Bell, Potomac Electric Power, TECO Energy.

John J. Arena, a trustee of Batterymarch Financial Management in Boston. Known for its contrarian investment philosophy, the company manages about $9 billion in assets for such clients as General Motors and American Telephone & Telegraph.

“We look at areas that are unpopular within the market. . . . Batterymarch will run its portfolios 98% to 99% in equities at all times.

“In the U.S., we look at companies selling on a corporate valuation basis well below their intrinsic value. Consequently, we have very heavy holdings in cyclical stocks, technology and financial stocks at this time.

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“We are moving moneys into Latin America now and will be in 1989. Our database of Brazilian stocks shows that the medium (price to earnings per share) multiple is somewhere around three, the average dividend yield is close to 10%, and the average return on equity is something like 30%. Yet they sell for roughly half of book value. We have holdings in Varig Airlines, a major airline in Brazil. It flies all over the world and has modern planes but (its stock) sells at two times earnings, has a total market value today of roughly $30 million (U.S.).

“This market (Latin America) is not for the faint of heart or your entire life savings either, but we think it’s not risky because of the very cheap price of the securities. Right now we are looking for countries that have developed stock markets, precedent in trading, and have competitive companies: Mexico, Chile, and possibly Argentina and Venezuela, along with Brazil.”

Andrew Tobias, investment author. His most recent book is “The Only Other Investment Guide You Will Ever Need.”

“One reason to think interest rates will go up is that Merrill Lynch came out on TV advertising that interest rates will go down, and I’m sure they believe that. One theory is that the Fed was holding back before the November elections but now may tighten up a bit. However, I think the long-term course of interest rates is likely to go down because they are still very high, historically.

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“So, if I inherited a million bucks, would I put it all in the stock market today? Well, I’d put a third of it into a mutual fund like the Evergreen Fund or Partners Fund. And figuring that over the long term stocks always outperform safer investments but stocks aren’t particularly cheap these days, I’d put a third into cash: money market funds or Treasury bills, something real safe that’s short-term and liquid. The final third you might want to put into municipal bonds of various maturities.

“If you are in a low tax bracket--and tax brackets are likely to go up over the next few years--maybe zero coupon bonds or real estate. If you live in Houston, it might be a good time to pick up a condo at half price.

“I don’t think any particular field right now represents the chance of a lifetime in buying opportunities.”

Lilia C. Clemente, chairman and chief executive of Clemente Capital in New York. The firm manages $500 million for mutual funds and other clients.

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“In terms of our global asset approach, we have tended to be much more cautious. However, we think a recession is very unlikely. In 1989, there will be slow, but sustained growth around the world.

“In the U.S., we like the economically sensitive group of companies in capital goods and cyclical industries and a group of small- to medium-capitalized companies: We like Freeport-McMoRan Inc., KaiserTech Ltd.

“In Europe, we look at the interest-sensitive stocks and the beneficiaries of the removal of trade barriers in 1992: We like Allianz Worldwide, the German insurance company, the Generali Group in Italy and Aegon Insurance Group in Holland.

“In the Far East, we believe Thailand continues to be the Fifth Tiger, following Taiwan, South Korea, Singapore and Hong Kong. It’s Asia’s breadbasket. I have been building up positions in Malaysian Airlines. I still like Siam Cement in Thailand and San Miguel Brewery in the Philippines.

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“We are still committed to Japan. But here you have to be very selective. We like domestic-oriented companies with strong asset backing. For instance, Mitsui Real Estate Development, which owns the Tokyo Disney--that whole area there is booming.”


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