Nygren: Equity Returns Likely to “Dominate” Fixed Income Returns

In his third-quarter commentary, top value fund manager Bill Nygren says equities are “highly likely to dominate returns” from fixed income investments.

“We continue to believe that equities are attractively priced and are highly likely to dominate returns from more popular assets such as fixed income,” Nygren writes in his commentary, which is posted on Morningstar.com. “Flows into bond funds continue to be abnormally high while equity funds experience outflows. We believe that investors have it backwards. We continue to encourage our investors and potential investors to revisit their asset allocations and make sure that they have as much invested in equities as their long-term asset allocation implies.”

Nygren says that he has long believed that investors focus too much on income statements and not enough on balance sheets and cash flow statements. Today, he says, it’s become a market-wide issue. “Many investors are projecting slow or no growth for the economy and therefore slow or no growth for S&P 500 sales and profits,” he says — which he thinks is off the mark. Nygren says that companies have hordes of cash on their balance sheets, and that they’ll use that cash to their advantage, even if sales and profits don’t rise as much as people would like. Two major ways that will occur, he says: increased dividend payouts, and share repurchases, both of which should benefit shareholders.

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