Despite American investors’ belief to the contrary, U.S. stocks are now in the greatest bull market of a lifetime—and it’s likely to last a long time because nobody really sees it yet and the economic landscape is uncertain, said investment experts Richard Bernstein and Bob Doll at the Tiburon CEO Summit on Tuesday in New York.
“We think we are in one of the biggest bull markets of our careers right now,” said Bernstein, CEO of Richard Bernstein Advisors and adjunct professor of finance at the NYU Stern School of Business. “Bull markets are not periods of wine and roses. They are periods of fear and indecision.”
Return on capital is highest where capital is scarce, he asserted, saying that’s why U.S. stocks are such a good bet even though asset managers keep pushing alternative investments such as timber, absolute return and emerging markets.
Bernstein’s firm now likes three equity themes: the American industrial renaissance, early-cycle Europe and reflating Japan. His one fixed-income theme is U.S. Treasuries for diversification. “Very traditional stuff is going to be the competition for alternatives,” he said, comparing the current bull market to one that occurred in the 1980s.
Doll, who recently left BlackRock and has become Nuveen’s chief equity strategist, agreed that investors who currently say “I’ll put my money in the stock market when things get better” are missing the mark.
“People can’t wait for the pullback to put some money in the market,” he said. “There’s a lot of cash sloshing around and looking for an entry point.”
Now’s the time, Doll said, predicting a double-digit percentage increase in dividends as payout ratios rise. He also predicts large-cap stocks will outperform small caps, and cyclical companies in the industrial and tech sectors will outperform defensives in staples and utilities. Nuveen is overweight stock, underweight cash, and prefers credit over sovereigns in fixed income.
Opportunities for Advisors
For advisors, the American consumer’s skepticism offers advisors an opportunity to study how they do and don’t invest and how the competition serves them, said Tiburon summit host Chip Roame (left) in a morning keynote presentation that drew more than 200 attendees from the C-level community of financial firms. Tiburon Strategic Advisors has hosted semiannual CEO summits for its executive-level clients since 2001.
“Consumers have the same net worth, $66 trillion, as in 2007,” Roame said, adding that five years of solid market returns have gone largely into the pockets of the wealthiest 5% of Americans.
This represents a missed opportunity for advisors to serve the affluent market of Americans with $500,000 to $5 million in investable assets, Roame suggested. That affluent market comprises just 7% of consumer households but controls 50% of household assets, he said.
Meanwhile, Roame said, American consumers have fundamentally changed since the 2008 crash, becoming more conservative and self-reliant. They like exchange-traded funds and index mutual funds, for example, with ETFs taking an ever-greater market share (though ETFs represent only 10% of the larger market that includes mutual funds).
Fee account flows may be shifting to rep-driven programs and managed ETF programs, Roame added, “but rep as portfolio manager performance is worse than consumer direct.”
Among 35 fundamental trends that Roame identified in this testy bull market, he pointed to these trends in the advisor world:
- Financial advisor models are multiplying in an “amazingly fragmented” industry where even the largest firms are lucky if they can capture 1% of market share.
- Financial advisor channels dominate, “though institutional channels still talk a big game.”
- Independent advisors are slowly taking share.
- Wirehouse broker productivity remains “very impressive,” managing $5 trillion in assets while only $60 billion has trickled to the independent channel.
- The breakaway broker trend is motoring along slowly.
- Custodians, even the second-tier players, are doing well.
- Financial advisor scale models are emerging at firms such as The Edelman Financial Group and United Capital Financial Partners.
- Financial advisor target market models are succeeding at firms such as Hanson & McClain, Lenox Wealth Management and Regent Atlantic Capital.
- Independent broker-dealers are repositioning themselves as custodians, TAMPs or producer groups.
- Discount brokers such as Schwab and Fidelity are doing well with new revenue models.
- Jefferson National is reinventing the annuities business.
Read Richard Bernstein: ‘Greatest Bull Market of Our Lifetime’ at AdvisorOne.