The pros are there with you -- nervous about stocks and bonds as clear opportunities become fuzzy in both. As the best and brightest fund managers talked at Morningstar's three-day conference in
They see Treasury bonds vulnerable to the inevitable climb of interest rates, and corporate and high-yield bonds paying so little interest that there isn't enough insulation to protect investors if the economy suddenly weakens or if investors get cold feet. After the unrelenting climb of stocks since 2009, the pros see a stock market so pricey that stocks appear vulnerable to any bad news for the economy or companies.
But the difference between you and professionals who run mutual funds is that fund managers are hired to do something with clients' money, no matter what. While sitting on cash rather than stocks or bonds might provide security in an iffy environment, cash earns no interest thanks to a Federal Reserve policy designed to get people to choose riskier options. Even though many pros say they are flummoxed by a market in which everything from stocks and bonds to currencies and commodities have all become pricey because of the trillions of dollars worth of stimulus poured into the markets by the Federal Reserve and counterparts in
They are emboldened by the fact that prices are high -- but not outrageously high.
After all, even though pros have worried about bonds and pricey stocks for months, the Standard & Poor's 500 stock market index has managed to bestow gains of 5.5 percent this year while bonds haven't incurred the losses that pros thought were a sure thing earlier this year. There hasn't even been a correction (a short-term downturn of 10 percent in the stock market) for 32 months. Such a long stretch without a sizable dip in the markets has happened only four other times, according to
Still, bond fund managers
Cash will hold back bond fund gains if bonds continue to do well. But Eigen figures interest rates will eventually rise, investors will panic and try to bail out of bonds so quickly that bonds will suffer sharp losses. Then he plans to buy bargains.
Fund managers typically avoid holding more than 5 percent cash because waiting for deals can take longer than expected, and investors get impatient when their mutual funds are earning less than other more daring funds.
Considering the high prices of stocks, some fund managers who specialize in stocks also are holding substantially more cash than usual. Even those scouring the world for investments are having difficulty finding stocks cheap enough to buy.
While some have suggested buying cheaper stocks in European markets,
"You can find some cheap companies, but all of them have hair on them," he told the Morningstar audience of over 1,000 financial advisers. "Some places that aren't even cheap have hair on them."
Since money managers must find something to buy, Treasury bonds that mature in five to seven years "are not a wonderful place to be, but are OK," he said.
While some investors have been interested in European financial companies that appear cheap, Stattman said "in many cases they are overlevered and in possession of bad assets."
European stocks have climbed significantly simply because the "
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