Money Managers Treading Lightly
Wall Street may once again have avoided an “official” bear market Thursday with the midday rebound in blue-chip stocks. But many money managers remain worried that there’s worse to come.
“People never believed the ‘new economy’ could crumble as quickly as it did,” said veteran value-stock investor David N. Dreman, who manages the Red Bank, N.J.-based Kemper-Dreman High Return mutual fund. “What we’re seeing is an unwinding. What I didn’t expect was that the unwinding would be so rapid.”
Dreman said that while he has been taking advantage of continuing price declines to buy a few battered technology stocks for his portfolio, for the most part he is waiting. He predicts a few sharp Nasdaq rallies in the near term, then further declines.
“In a real bear market, prices get a lot lower than you imagine are possible. We’re being pretty cautious and taking our time,” he said.
Jon Baranko, manager of the trading desk at Strong Capital Management, said his firm also is taking a “defensive” strategy.
“The market is trying to come to grips with how slow the economy really is,” he said. “If we get some economic [data] that show things are stabilizing, the market is going to respond. It could be a month from now; it could be three months from now.”
Baranko said Menomonee Falls, Wis.-based Strong, with $45 billion under management, has been shifting its portfolio focus to “early cyclical” stocks that the firm believes should respond well to Federal Reserve interest rate cuts.
At Kayne Anderson Rudnick Investment Management in Los Angeles, money manager Allan Rudnick said he has been using the market’s decline “to add stocks that we think are at the low end of their value range.”
But Rudnick, who helps manage about $6.6 billion for institutions and high-net-worth individuals, worries that further market losses could eventually spook buy-and-hold individual investors into selling, triggering even deeper stock declines.
“During the last 10 years, the man-on-the-street investor, the mutual fund buyer, has learned they should buy on the dip, and they’ve learned it’s been a mistake to sell and panic out of stocks or mutual funds,” he said. “I’m not sure that the man in the street is going to be right forever.”
Some money managers, however, say the slide that began on Wall Street a year ago is close to reaching bottom.
“It was looking terrible [Thursday] morning,” noted Fritz Meyer, who manages the Invesco Growth and Income fund in Denver. But he was impressed with the sharp rebound in many stocks late Thursday, especially in the tech sector.
Meyer said he has stepped in to buy some tech names. “I might have started [buying] a little early, but we believe the Fed is at the controls and there’s no question this economy will start turning up. I think we’re at or near the bottom here.”
Meyer expects the market to end the year up 20% or more overall.
Eugene Sit, head of Sit Investment Management, a $9-billion money manager in Minneapolis, believes the economy will make a “soft landing” by early spring and that the market will rebound in the second half of the year.
Investors, he said, have been victims of their own success in terms of their increasing access to market information, and the urgency with which they choose to react to that information, bullish or bearish.
“It drives the [market] excesses in both extremes,” he said.
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How Key Funds Are Faring
Here’s a look at the performance of the 20 largest stock mutual funds this year through Thursday and their returns
in 2000.
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Year-to-date 2000 Total assets total total Name of Fund (in millions) return return Fidelity Magellan $95,834 --6.4% --9.3% Vanguard 500 Index 90,485 --5.8 --9.1 Investment Co. of Amer. 57,445 --2.5 3.8 Washington Mutual Inv. 48,216 +0.1 9.1 Janus Fund 42,321 --9.7 --14.9 Growth Fund of America 39,385 --5.9 7.5 Fidelity Growth & Income 39,249 --6.2 --2.0 Fidelity Contrafund 38,220 --8.8 --6.9 Amer Century Ultra 35,354 --9.1 --20.0 Janus Worldwide 34,014 --9.8 --16.9 Europacific Growth 32,646 --3.7 --17.8 New Perspective 32,525 --2.5 --7.2 Fidelity Growth Company 30,087 --17.4 --6.3 Fidelity Blue Chip Growth 27,428 --9.0 --10.5 Vanguard Windsor 25,304 +0.3 16.9 Janus Twenty 25,165 --15.7 --32.4 Vanguard Wellington Fund 23,400 +1.8 10.4 Fidelity Equity Income 22,811 --2.0 8.5 Vanguard Primecap 22,639 --8.9 4.5 Putnam Voyager 21,628 --11.2 --16.8
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Source: Lipper Inc.
