The ongoing economic recovery and rising stock indexes have some of the top wealth advisers in Orange County shifting strategies to meet market conditions and their clients’ needs.
Some are holding longer positions on stocks and dumping U.S. bonds.
Others are moving to blue chip stocks for dividends.
And some are looking to commodities.
Bob Klein, an adviser with J.P. Morgan Securities in Newport Beach, shorted stocks in 2008. He stuck to the strategy until the federal government announced its bailout plan for banks, an insurance company and others.
Klein then took longer positions on natural resources, oil, gold and other commodities with thoughts they had room to run.
“That’s been my position for some time,” said Klein, who’s also betting on stocks with the belief that the economy will continue to recover as a result of the “tremendous monetary stimulus.”
“Long Only” Gains
In 2010, Klein’s “long only” stocks saw values increase more than 20%, beating the Dow Jones Industrial Average, Nasdaq and Standard & Poor’s 500.
In the past five years, his short and long accounts have seen more than a 20% jump in value on an annual basis.
Klein is one of six local wealth advisers selected by Barron’s for its recent list of the 100 leading performers throughout California.
The Barron’s rankings, the basis of the Business Journal’s list of top wealth managers (see pages 34, 36), uses a combination of real returns, complexity and scope of advice given along with a wide range of other proprietary factors.
Klein said he sees the outlook on U.S. Treasuries as “very bleak” and puts the onus on monetary policy makers.
“Treasury bonds and the dollar are being thrown under the bus to deal with more pressing problems,” Klein said, citing a recovery that remains relatively tepid with stubbornly high unemployment.
Klein isn’t alone in his downbeat assessment of bonds.
Newport Beach-based Pacific Investment Management Co. cofounder Bill Gross recently sold all U.S. bonds from his $234 billion Pimco Total Return fund, the world’s largest mutual fund.
Investors have pulled some $19 billion, or 7.4%, from the fund since November, according to data from Chicago-based fund tracker Morningstar Inc.
Trudy Haussmann, founder of Hauss-mann Financial Inc. in Newport Beach, said she’s concerned about interest rates creeping up in the U.S. and eroding the value of bonds.
Real Estate Play
Haussmann has shifted from government bonds to strategic and global bond funds that are less sensitive to interest rate hikes. She’s also added to commercial real estate as an inflation hedge.
“That’s probably been the most significant change in the last four to six months,” Haussmann said.
Strategies at Newport Beach-based Pence Wealth Management haven’t changed much in the recovery. Cash flow investing is the niche carved out by adviser Laila Pence and her husband Dryden Pence, the firm’s chief investment strategist.
“Cash flow trumps volatility,” she said. “It’s our core style.”
At Pence Wealth, that means at least 65% of portfolio assets are paying some income, whether high-yielding bonds or dividend-paying stocks.
In stocks, Dryden Pence looks for companies with a competitive advantage. Domestically, the firm is targeting food and agriculture companies, real estate investment trusts and heavy manufacturers.
“These companies improved balance sheets tremendously,” Dryden Pence said. “As the economy continues to grow their profitability will expand dramatically.”
Sid Miramontes, a UBS Financial Services Inc. adviser based in Brea, has been buying short-term bonds since late 2007. On the stock side, he’s put clients into large-capitalization, dividend paying companies, mixing in small-cap utilities.
Recently Miramontes said he’s been adding stocks in Brazil, Russia, India and China, commonly referred to as the “BRIC” countries.
Bullish on Tech
Miramontes said he’s especially bullish on small- to mid-cap technology companies as large corporations increase software and computer products purchases—spending that was put on hold during the downturn.
“We see big business spending a lot of capital there,” Miramontes said.
Merrill Lynch wealth manager Tom Blanchfield has been moving his clients back into stocks for some time.
“People had overdone the move away from risk assets,” said Blanchfield, who’s based in Merrill Lynch’s Newport Beach office. “People need to own some growth and risk assets.”
Blanchfield has been buying what he considers to be undervalued shares of companies that provide consumer staples.
He’s also moving into municipal bonds, encouraged by the tough talk of California Gov. Jerry Brown, New Jersey Gov. Chris Christie and Gov. Scott Walker of Wisconsin, all of whom have pledged to drastically slash their state budgets.
“They’re relatively cheap compared to corporate debt or federal government debt,” Blanchfield said of municipal bonds.
Eye on Anxieties
Marc Foster, a UBS adviser based in Newport Beach, sees economic momentum building in the U.S. He’s also keenly aware that anxieties spurred by the earthquake in Japan and the Libyan uprising easily can rattle confidence.
“People are hyper-sensitive,” Foster said. “We spend a lot of time on the telephone talking to people every day. It’s the decade of the black swan” (see related story, page 30).
