Trying times for portfolio strategists

April 20, 1994|By Andrew Leckey | Andrew Leckey,Tribune Media Services

So you think you've got it bad. Just try being a Wall Street portfolio strategist in volatile 1994.

The correction came, as expected, but where the market goes from here remains a journey into the unexpected.

Don't kid yourself. There's still risk. Examine everything in your personal holdings to determine whether you really want it or not. Don't feel self-conscious about your jitters, since you have every right to feel shell-shocked.

"Stock-market corrections get shorter and shorter in duration and accomplish what would have taken weeks in the past," observed Steve Einhorn, chief portfolio strategist with Goldman Sachs, who recommends a bullish portfolio mix of 70 percent stocks, 25 percent bonds and 5 percent cash because he believes the bull market isn't over yet.

It's not unusual historically to have an 8- to-10 percent correction as a market makes a transition from being interest-rate driven to profit-driven, he added.

"The swiftness was surprising, but perhaps we shouldn't be surprised, with the economy so strong and all the program-trading activity," said A. Marshall Acuff, chief portfolio strategist with Smith Barney Shearson, who recommends 50 percent of a portfolio be put in stocks, 25 percent bonds and 25 percent cash.

Investors should sell stocks in rallies to move up to higher-quality issues, he advised.

"There will be a lid on a stock market rally because both the restructuring of American industries and low interest rates are over," predicted Charles Clough, chief portfolio strategist with Merrill Lynch, who suggests 60 percent stocks, 25 percent bonds and 15 percent cash. "I could see the correction extending into summer."

While cautious optimism reigns, never forget the darker potential.

"I suggest investors sell or scale back stock holdings, in particular their losers, for the market isn't going to help losers anymore," advised Michael Metz, chief portfolio strategist for Oppenheimer & Co., who would put 75 percent of a portfolio in cash, 15 percent in stocks and 10 percent in bonds.

The economy is simply too strong, the Federal Reserve had been extraordinarily accommodating for a long time and stocks remain overpriced, he said.

There still remain some worthy investments. In cyclical stocks. Mr. Einhorn likes Chrysler and General Motors, auto-carpet maker Masland Corp., homebuilder Centex Corp. and home-improvement firm Masco Corp. From basic industries, he favors Caterpillar, Du Pont, Inland Steel and Birmingham Steel. Technology selections include Intel Corp., Microsoft Corp., DSC Communications and BroadBand Technologies, while financial favorites are NationsBank Corp., Fannie Mae and Freddie Mac.

Mr. Einhorn predicts consumer growth companies, such as foods and beverages, will underperform because they lack earnings momentum. But bonds are worth accumulating. He expects long-term rates to slide one-half to 1 percentage point by year's end, while short-term rates increase one-fourth to one-half of a percentage point.

In Mr. Acuff's opinion, growth stocks are the best bet. Health-care favorites are HealthSouth Rehabilitation, United Healthcare and Health Systems International. Other growth selections include McDonald's and Procter & Gamble. Some companies that sell products internationally include General Electric and Emerson Electric. Hold bonds, but be willing to accept volatility, he concluded.

Favored Clough holdings are capital-spending stocks Caterpillar, Deere and Fluor; nursing-care stocks Genesis Health Ventures and Living Centers of America; and real estate investment trusts, or REITs, such as Manufactured Home Communities and Nationwide Health Properties. He's getting out of casino and telecommunication stocks, but he's gradually accumulating bonds, since inflation isn't an issue and bond yields will peak just slightly higher than current levels.

Mr. Metz considers bonds more attractive than stocks. Municipalsare more attractive than Treasuries, with durations of seven to 10 years preferable. He likes Capital Holding, First Chicago Corp. and American Express, Amerada Hess and Atlantic Richfield, Homestake Mining and Horsham Corp. Other picks are CPC International, Ralston-Purina Group, Merck & Co. and Johnson & Johnson.

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