Heard Off the Street: Individual investors remain wary amid growth, low yields
Even though the Dow Jones industrial average has risen 3 percent since it topped its previous all-time high March 5, individual investors remain reluctant to join the party despite the bullish sentiment of the so-called smart money — pension funds, mutual funds and other institutional investors.
More than 3 out of 4 Americans surveyed early this month by Bankrate.com said they were not more inclined to invest in stocks despite record low yields on savings accounts and certificates of deposit.
A survey conducted in January by Franklin Templeton revealed that — right or wrong — 37 percent of U.S. investors do not think stocks are essential to meeting their long-term investment goals. Surprisingly, 31 percent of U.S. investors thought stocks were flat or down last year despite the fact that the S&P 500, a broader measure of the market’s health than the Dow, advanced 16 percent.
In contrast, Barron’s reported last week that 74 percent of institutional investment managers are bullish, the highest level in more than 20 years.
Professional investors appreciate what improving corporate earnings and slow but steady economic growth are doing for the stock market. They also understand that the Federal Reserve’s policy to stimulate the economy by keeping interest rates at record low levels drives investors looking for more than paltry returns into stocks. That’s made many professional investors adopt a “risk on” strategy compared to the “risk off” strategy many individual investors are pursuing.
Retail investors are still bearing scars from the market’s 2008 collapse. When Mark Luschini speaks to them, they appear to understand that things are improving, but they are not ready to act on it.
“When I talk about the economy and the fact that we’ve had 15 consecutive quarters of economic growth, I can see on their faces that they hear me, they believe me, but it doesn’t feel that way to them,” said Mr. Luschini, chief investment strategist for Janney Montgomery Scott.
There’s one more thing about institutional investors that makes them different from individual investors. They are paid to invest, so staying out of the stock market is not an option for those charged with managing diversified portfolios. Skittish individuals, on the other hand, can shun stocks and stash their money in low-risk investments.
“They say it’s not worth the risk,” said Christopher Wiles of Rockhaven Capital Management in Mt. Lebanon. “It’s hard for retail investors. Who do you trust? What do you trust?”
What little stock buying individuals have done largely has been limited to dividend-paying stocks sought by investors who are looking for a little more yield than bonds and other fixed income investments offer.
“It is not an avalanche. People are not all in,” said Federated Investors president and CEO J. Christopher Donahue.
Mr. Donahue believes the lack of individual investor participation in the rally means that it has a way to go.
What will it take for more individuals to jump in? More confidence on the part of companies and better, more consistent news on the jobs front, said Ronald Heakins of OakTree Investment Advisors in Shadyside.
“Employment has got to improve dramatically to the point where employees are confident in their ability to move from one job to another,” he said.
Mr. Heakins is forecasting a continued run of what he calls “yo-yo years” in which the economy and stock market alternate between moving a little up and a little down. For that reason, he expects it could take three years or longer for the economy to improve enough for individual investors to get over their jitters.
Franklin Templeton senior vice president David McSpadden said it is not surprising that investors remain so wary and uncertain. He thinks they may be looking too much at the market’s volatility over the last few years rather than its general direction.
“If the market isn’t quite a volatile as it’s been in the past, that will help,” Mr. McSpadden said. “The challenge is getting people to move contrary to where their emotions are directing them.”
Mr. Luschini believes that higher interest rates could cause enough pain in the bond market, a refuge for investors in recent years, to coax individuals back to stocks. Bond prices move in the opposite direction of interest rates, and for months many have been warning of a bear market for bonds.
So far, “there’s no impetus for [bond investors] to change their mind,” Mr. Luschini said.
Even though Mr. Wiles believes Fed policy has artificially inflated stock prices, he believes “you’re kind of stupid not to play along.”
It’s “a crazy market to bet against because of the liquidity. But from a valuation standpoint, it makes no sense,” he said.
In a blog post last week, Mr. Wiles compared the market rally to a party.
“This party’s getting a little out of hand. I’m still here, but I’ve grabbed my jacket and I’m hanging out on the porch,” he wrote.
Asked in an interview why he’s on the porch, Mr. Wiles said: “You kind of want to be at the party, but you want to be able to see the flashing lights of the police car coming over the hill.”
First Published April 28, 2013 12:00 am
Investment manager aims to lower risk
Sunday, November 22, 2009
By Len Boselovic, Pittsburgh Post-Gazette
As long and strange of a trip the past dozen years have been for investors, it’s been equally long and strange for Mt. Lebanon investment manager Chris Wiles.
A year after Barron’s named him the best equity-income managed based on his five-year performance, Mr. Wiles left Federated Investors in 1997 to launch his own investment firm, Rockhaven Asset Management. A dozen years and two detours later, he’s flying solo at age 50, relaunching Rockhaven at a time when market behavior has even such professionals as Mr. Wiles stumped.
“It has very little to do with valuation and fundamentals. It has everything to do with where money is going to be treated the best,” he said.
For the time being, that means just about anyplace but low-yielding U.S. Treasuries and the debilitated U.S. dollar, Mr. Wiles says.
“Almost everything else is more attractive,” he said. As long as yields stay low and the dollar depreciates, investors will buy stocks, higher-yielding corporate bonds, [real estate investment trusts], commodities and gold.”
However, once the unemployment rate drops, allowing the Federal Reserve to stave off inflation by raising interest rates, the party will end and it “won’t be pretty,” Mr. Wiles warns.
“I know it’s setting up for something, but I don’t know what it is,” Mr. Wiles said. “When it changes, I’m going to be more defensive and protect on the downside.”
The Sharon, Mercer County, native made a name for himself managing several Federated mutual funds, then did the same at Rockhaven. But the small firm’s equity-income and dividend funds had a hard time drawing new money once the tech stock bubble burst in 2000. Hoping to attract more investors, he and co-owner AmSouth Investment Management sold Rockhaven in 2002 to Strong Financial, a Menomenee Falls, Wis., mutual fund operator.
A year later, Strong was one of several fund companies targeted by then New York Attorney General Eliot Spitzer and the Securities and Exchange Commission for improper trading. Strong was sold to Wells Fargo & Co. but Mr. Wiles didn’t go along. He stayed in Pittsburgh, managing more than $2 billion in large cap portfolios for National City’s investment management arm.
That lasted until the Cleveland bank’s credit problems ended with its sale to PNC Financial Services Group last year. PNC already had large cap managers in Philadelphia, so Mr. Wiles restarted Rockhaven from his home. He was approved last week as a registered investment adviser by the Pennsylvania Securities Commission.
Investors looking for a “buy-and-hold” strategy won’t find it at Rockhaven. Mr. Wiles says the strategy, recommended for many small investors, is dead. Here’s why:
While stocks have returned about 9.5 percent annually since 1927, Mr. Wiles says that’s misleading because it doesn’t reflect the sharp swings Wall Street takes, movements that can produce dramatically different returns based on an investor’s time frame for buying and selling. He cites the last decade as proof: the tech stock bull market and subsequent bear market, Sept. 11, the real estate and credit bubbles and the deluge that followed, and the market’s rocketlike rise since March.
Mr. Wiles says he’s developed a globally diversified strategy that will allow investors to get in and out of U.S. stocks, U.S. Treasuries, commodities, real estate and five other asset classes at appropriate times. What he came up with is a tactical asset allocation that won’t squeeze the last penny out of bull markets but will minimize losses in bear markets. As a momentum investor, Mr. Wiles takes his buy and sell cues from swings in the prices of stocks, bonds and the other assets in his portfolio. He tested how those signals would have worked since 1999 and found that using them would have turned a $1,000 investment into $2,340 vs. $1,310 for the buy-and-hold investor.
“The key to the market timing I am doing is to participate in up trends and protect during downdrafts. It is really about lowering overall risk,” Mr. Wiles said. “I have very firm buy and sell disciplines. Discipline and humility are the keys.”
The knock on market timing is that, even if a manager makes the right moves at the right time, trading costs can eat up whatever advantage he has over a buy-and-hold manager. Mr. Wiles is curbing those costs by using exchange-traded funds. ETFs are baskets of securities built around indexes for stocks, bonds and other asset classes. Unlike mutual funds, which are bought and sold based on their price at the end of a trading day, ETFs trade like stocks. Their prices fluctuate throughout the day.
Mr. Wiles currently manages about $5 million. He is targeting investors with $500,000 or more, as well as charities and foundations with $1 million to $10 million.
While the last decade tested the mettle of even seasoned investors such as Mr. Wiles, it’s been even harder on retail investors struggling to determine the best way to manage their retirement savings. Mr. Wiles doesn’t think it’s going to get any easier for them.
“They’ll have to have a tougher stomach,” he said. “I think markets are going to be volatile for a long time.”
Rockhaven’s Christopher Wiles talks about his new company
Friday, November 20, 2009
Pittsburgh Business Times – by Patty Tascarella
Veteran financial professional Christopher Wiles has returned to running his own company with the launch of a new investment management firm: Rockhaven Capital Management LLC. Wiles talked with the Pittsburgh Business Times about the new company and his thought process behind it.
“I thought it sounded good. Rock solid. Safe haven.”
How do Rockhaven Asset Management and your new company Rockhaven Capital Management differ?
“It’s a very different company than the old Rockhaven. The original Rockhaven was purely a mutual fund manager. We had two: the Rockhaven Fund and the Rockhaven Premier Dividend Fund.” The new Rockhaven is about managing very diversified individual portfolios.
What’s different about starting a company now compared to 1997?
“In the previous period, it was a very difficult time to raise enough assets under management on our own. That’s the main reason we sold to Strong. We had a very good track record, but we weren’t able to generate the assets under management. I am in a much better place personally and financially now to be able to do something on my own terms.”
How are you managing money at Rockhaven?
“What I’m doing now is really managing my own family’s money and having more and more people come to me and say, ‘Jeez, Chris, why don’t you do this for me, too?’ Instead of being pigeon-holed into a Morningstar-style box of large cap investments all the time, now I’m focused on how do you preserve your net worth for the long-term. I spent a lot of time from November of last year through the summer researching, studying, figuring it out, back testing models on a global tactical asset allocation product. That is U.S. stocks, international stocks, U.S. bonds, international bonds, real estate, commodities, gold and cash and going through these different asset categories and trying to find what is the optimal long term asset allocation you should have in each of these. Most people do strategic asset allocation, they’re going to have, say 40 percent in U.S. stocks and 20 percent in international stocks, a kind of static mix of diversification. What tactical asset allocation does is move assets between categories and between cash in a much more dynamic fashion, hence our Rockhaven slogan is to be in harmony with constantly evolving markets. If the markets are working, I want to be there. If they’re not, I want to be in cash. I do that basically through technical analysis, a little valuation is involved. It’s predominantly straight forward buy and sell.”
How do you plan to grow Rockhaven Capital?
“I‘m clearly going to need help in back office and compliance and I could always use more brain power as far as keeping track of portfolios and investments. But I’m going to do this along my own terms. As clients come in, I’ll add people. The difference between 1997 and today is really night and day. The technology is so superior, it’s really quite amazing. So the way I’m setting it up is so I can work from anywhere at any time. I don’t know necessarily if we’ll all be in the same location. People might work from home offices.”