"Be fearful when others are greedy; be greedy when others are fearful." Words to ponder. Especially when those thoughts are coming out of the mouth of Will Danoff, the legendary, veteran manager of the Fidelity Contrafund (Ticker: FCNTX). He uttered his insight at the annual Morningstar Investment Conference during the "Quarter Century Club," a panel hosted by Morningstar Fund Research President Don Phillips. The "century club" panel moniker refers to the three guests (Phillips included, who has worked at Morningstar for a gazillion years) who have lived at the helm of mutual portfolios for 25 years --- and are still standing.
Of interest was the relative happy outlook of the veteran guests --- Susan Byrne, who ran the Westwood LargeCap Value fund for decades (successfully, obvi), and Brian Rogers, CIO of T. Rowe Price and chief of the popular T. Rowe Price Equity Income Fund (Ticker: PRFDX). Brian Rogers put the current investing climate into an interesting perspective (one FAs might remind clients): "Today looks a lot like 1982," he said. Rogers says that the investment/economic similarities, excepting low interest rates, are similar: a "lost decade," a housing crisis, demoralized investors, and other assorted bad news. Which, of course, for a manager who seeks low p/e, high-yielding stocks, is attractive. "We're in a bad place right now," Rogers says. "But we've seen this movied before. [The current environment] doesn't mean the next 10 years will be like the last 10 years." Indeed, the three panelists, and an earlier panel about the asset management business, all agreed that to gross outsized returns, one must buy --- or, as they put it --- rebalance when the outlook is fierce. To wit, Russel Kinnel, who the CNBC host described as a 14-year-old given his relative youth when he joined Morningstar in 1994 ("19," responded, Kinnel), observed that naive forecasting isn't a smart way for FAs and their clients to plan. Extrapolating into the future off of short-term performance doesn't work.
Laura Lutton, Morningstar's editorial director and who specifically follows fund of funds and 529 plans, target date funds and the like, agreed with Phillips that the SEC may be all over target date funds, but, in general, they do well given their asset allocation challenges. She also said that 529 plans have improved over the last two, three years (reduced fees, more sophisticated investment decisions) and are "compelling savings vehicles." Alas, she says, the average 529 plan is only worth about $15,000. Her response was enlightening given the panel's moderator, CNBC's Power Lunch moderator Tyler Mathisen's question, essentially stating: Are 529 plans and target date funds over promising, "implying" success so long as an investor invest sums as he is told? "529 plans are not large enough to accomplish what they" intend to accomplish, says Lutton.
Oh, as for Europe. If your clients' asset allocation to Europe dropped in value from 12% to, say, 10%, all agreed, re-up (er, rebalance), bring the allocation ("average up," as Scott Burns, Morningstar's director of ETF, closed-end and alkternative research, put it) back up to 12%. Again, the point: Outsized gains are won when one must be brave. (See 2000 to 2002 and the run from 2008; nice time to have invested during the scarlet red in the streets.)