newjerseynewsroom.com

BY WARREN BOROSON

NEWJERSEYNEWSROOM.COM

BOROSON ON MONEY

Despite the catastrophe in Japan, financial advisers at RegentAtlantic Capital in Morristown remain rather optimistic about the U.S. economy. Their investment of choice: large-cap U.S. stocks, especially those with a global presence.

In a talk in Ridgewood last week, Brian Kazanchy, CFA, CFP, said that stocks in general are more attractive than fixed-income investments, with their low interest rates – rates that he called “troubling.” Whereas the 10-year Treasury is yielding 3.4%, U.S. stocks have an earnings yield of 6.5% -- which is in the “fair value range,” he said.

Still, Kazanchy strongly endorsed a diversified portfolio. From 2000 to late last year, he said, the U.S. stock market went nowhere.But a diversified portfolio with exposure to many different asset classes would have performed better – because U.S. small caps, international small caps, emerging markets, and real estate had positive returns during that period when U.S. large caps (the S&P 500) were flat.

His overall forecast: Mostly sunny, with a chance of occasional showers.

Negatives he cited: a slow recovery from the recession in developed countries, imbalances in global trade, Middle East turmoil, possible inflation, a weak housing market, a weak job market, and European debt problems.

On the other side of the ledger, he went on, the current economic expansion should continue. Past recessions have lasted 15 months on average; the latest, 18 months. Expansions after a recession tend to last 43 months; we’re in only the 21st month of the current expansion.

Also, core inflation – skipping energy and food – is “benign.”

Why a preference for large-cap stocks? His answer: They have plenty of cash on hand, which gives them the flexibility to increase dividends, engage in acquisitions, or buy back their own stock. And while emerging markets have done spectacularly well the past couple of years, he said, they remain good long-term investments. As for the price of oil, the higher prices go, the more viable that alternate sources of energy become – which is why oil-producing nations don’t want oil prices to go through the roof.

Where can one find bargains in stocks? Kazanchy said that many solid stocks are being overlooked because the countries they are domiciled in are regarded with disfavor. Almost everyone loves Exxon stock, he said, but what about Total, in Spain? Exxon trades at more than 12 times earnings; Total, at only 8-9 times earnings.

Turning to fixed income, he maintained that the 30-year bull market has come to an end – interest rates have declined from 16% in 1981 to 3.4% now. “Those were the years when you couldn’t lose.”

Today, investors should just want bonds to keep pace with inflation.

Where to invest? Kazanchy suggested two mutual funds that invest opportunistically – JPMorgan Strategic Income Fund and Eaton Vance Global Macro Appreciation Fund. These funds may invest in all segments of the bond market, both domestic and foreign. The can also sell bonds short (bet on their going down).

RegentAtlantic currently has 50% of its fixed-income portfolios in short-term high-quality corporates, 35% in opportunistic mutual funds, and 15% in inflation-protected bonds.

Municipals still make sense for people in high tax brackets, he argued, but corporate balance sheets look better. Besides, “The reporting on municipal balance sheets is poor.”

Asked about commodities like oil or copper, Kazanchy said that buying individual stocks is a smart way to invest. Otherwise, you may wind up with futures – and pay a premium. As for gold, “It looks expensive. The downside risk scares me.”

Asked about pharmaceuticals, he said, “It’s a tough environment. It’s very expensive to bring drugs to market.” Many big companies are letting the smaller companies do the spadework needed, then perhaps acquiring them.

Warren Boroson will teach a course for beginning investors on Tuesday, April 5, from 7 to 9 p.m. at the County College of Morris. Cost: $29. To register by mail: Dept. C, CCM, 214 Center Grove Rd., Randolph, N.J. 07869. To register in person, go to the records office in the student center, next to parking lot 6. To register online, www.ccm.edu, Business & Community. Deadline: March 29.

Warren Boroson will answer questions sent to him at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .