At Legg Mason Canada’s Global Investment Forum luncheon in Toronto on Monday, Patrick Kaser, managing director and portfolio manager with Brandywine Global Investment Management, LLC, said investors are motivated by one of two factors: fear or greed. Guess which one is keeping investors from investing in U.S. equities?
“There’s still fear of being in U.S. equities,” he said, “but I think that fear is misguided.”
First, consider stocks versus other asset classes. Although bonds have had higher returns over the last five to 10 years, this has not been the case for equities, Kaser explained. But he quickly added that looking at past historical performance is not really what matters. “What matters is the valuation of the assets and the outlook.” And that outlook is good.
Despite declines of the past, U.S. equity markets are showing the most promise among developed countries. 2011 has been a better year for equity markets, Kaser said, as the S&P 500 outperformed almost all of the major developed and emerging equity markets. (In March 2009, the S&P 500 fell below 700; since that time, it has doubled.)
And the political/economic landscape has been positive for U.S. equities. Kaser said he’s optimistic about the U.S. economy, especially in relation to other markets. “There are areas of [the economy] that can’t get any worse,” he said. “Areas such as housing activity and auto production can only get better.”
Although housing is still slow, Kaser says there’s evidence of housing demand with population increase. (The U.S. adds roughly a million people to its population a year, he said.)
Another area is employment, which is expanding slowly as the private sector generates jobs. (Requests for unemployment claims fell from 415,000 in February this year to 366,000 in December.)
Kaser also mentioned that he’s seen an acceleration of loan growth stateside.
In conclusion, Kaser talked about the opportunities available for investors in U.S. large cap companies. Large cap stocks have been the cheapest they have been in the past 35 years, he said. He pointed to the top 10 stocks in the 10 GICS (Global Industry Classification Standard) sectors, which are actually cheaper than the sector average.