Top fund manager David Herro says he’s not letting macroeconomic events change his investment approach.
PIMCO’s Bill Gross says that what is needed to fix the European debt crisis is growth and budget discipline — not mere austerity.
“No, that doesn’t work,” Gross says of the austerity approach in an interview with the Associated Press. “Eliminating a budget deficit won’t produce growth. It really requires a delicate combination of growth and budget discipline over the longer term. Policymakers have it tough.”
Gross says that bond investors do look at debt levels, but they also look at growth. And right now, that’s what’s lacking in Europe. “If a country can’t grow its way out of its predicament, we won’t go there. That’s why we’ve stayed out of Europe for the most part,” he says.
For Europe to heal, it needs to lure private investors, and to do that, balance is needed, not a policy of “cut everything”, Gross says. “If the private markets can’t be convinced, this crisis is going to be with us for a very long time,” he adds.
While the chaos surrounding recent elections in Europe is scaring many investors, author and top-performing money manager Kenneth Fisher says it doesn’t change his bullish outlook for stocks for the year.
Fisher tells Reuters that he thinks the European debt situation won’t topple the stock market, and that the fears are overhyped. “We have seen this movie about 15 times, we should be ashamed of ourselves to fall for the same movie three years in a row,” he said. “If this isn’t priced in, I don’t know what is.”
Fisher thinks the shift toward anti-austerity candidates in Europe could actually help markets, if those candidates follow through on promises to deliver measured growth and prevent the European economy from falling further into recession, according to Reuters.
Templeton Asset Management’s Mark Mobius says he is upping his exposure to European stocks, despite the continent’s lingering debt woes.
“The stocks in the European countries have gone down excessively as a result of the bad news emanating from this crisis and we find good investment opportunities at bargain price and we are increasing the purchases of these stocks,” Mobius says, according to Bloomberg.
Mobius adds that “we don’t think the crisis will last forever and the European economies will recover nicely, there will be much more fiscal disciple in one year or two”. He says he’s buying consumer-oriented stocks, and is focusing on eastern Europe.
Top hedge fund manager John Paulson thinks the European debt crisis is going to worsen, thanks to continuing problems in Spain.
“Mr. Paulson told investors in a call on Monday that he was betting against the creditworthiness of Germany,” the Financial Times reports, “regarded in markets as among the safest sovereign borrowers, because he saw the problems affecting the eurozone deteriorating severely, said a person familiar with Mr Paulson’s strategy.”
Paulson believes that problems in Spain will spill over and threaten the eurozone’s stability, Financial Times reports. It notes that Paulson’s position includes holdings of credit default swaps written on German debt, and has been in place for several months.
Oakmark’s David Herro says that despite a tough year for his funds (which still have very strong long-term track records), he remains “extremely confident about the medium- and long-term future.”
Herro says in commentary on his firm’s web site that the biggest challenge in the market right now may be volatility, which is being driven mostly by political instability and also by some macroeconomic instability. He is heartened by valuations, which he says are cheap internationally, and especially cheap in Japan. “Global blue chips in general are selling at extremely attractive valuations, though investor interest remains soft,” he says.
European financials also present opportunities, Herro says, because they have been unfairly painted with a broad brush. “It is widely believed that all banks and financial institutions in Europe are under duress, when in fact we are able to find healthy, well-capitalized, profitable companies in this sector,” he says. “Certainly this isn’t the best of times, but companies are still making money while selling at well below half their book value. I think there are good opportunities for careful, long-term investors.”
Other reasons Herro is optimistic: Global economic growth remains solid despite the European problems, and investors in recent years have poured money into “safe” assets like Treasury bonds, which have outperformed. He thinks there will be some mean-reversion on that front given current valuations and yields of stocks.
The European debt crisis dominated the investment world for much of 2011, with eurozone stocks getting pounded. But in 2012, Kenneth Fisher says to key on the same types of companies that were hit hard by the crisis.
“My travels have left me even more convinced that the current crisis will pass,” Fisher writes in his latest Forbes column, in discussing his recent trip to Europe. “In my last column I pointed out that most investors get very bullish when they think about solutions for Europe. So the best strategy is to buy good stocks now that were impaled by 2011’s head-fake to hysteria. This year will be beautiful.”
Fisher says that worries about Italy and Spain defaulting on their debts are overblown. Greece “is another story,” he says, but that’s of small consequence to him. “It’s like a small piece of Mexico without the good parts,” he says. “If it defaults it will be as economically significant as if Istanbul were to default. It’s Third World. Don’t fret over it.”
Fisher offers several stock picks, including Italian aerospace firm Finmeccanica.