Report From Morningstar: The Investment Gurus Prog

What lies ahead? That was the topic addressed by a panel of market experts on June 26 at the 2003 Morningstar Investment Conference in Chicago. Moderator John Rekenthaler of Morningstar said that while getting compensated is an area of concern for advisors, it is important not to lose sight of some of the bigger issues surrounding the markets and portfolio construction.

“When you get enough basis points in your favor you’ll do well,” Rekenthaler said, “but we cannot forget the big picture issues like the crash of 1987, the junk bond crisis, the insurance crisis, rising inflation, the Dogs of the Dow, the Asian crisis, the late 1990s, and the not-so-pleasant market of ’01, ’02, and ’03.” Or the “Dear Market” as Rekenthaler referred to it

The panel included Daniel Fuss, portfolio manager for Loomis, Sayles & Company, Paul McCulley, managing director and head of PIMCO’s short-term desk, and Byron Wien, managing director and senior investment strategist for the U.S. at Morgan Stanley.

Fuss began his comments by making a short-term prediction. “I’d sell everything right now, and [yet] my theme today is “hanging on to what you’ve got,” he joked. According to Fuss, three things will change for investors in the U.S. in the near future: both fiscal security and the government are going to become a greater part of everyone’s life; second, the world’s population will continue to grow, but not in every region; and third, the economy will boom in areas like China, India, and Southeast Asia but regions like Japan and Europe will continue to struggle.

“In bonds, we are going to live with the current yield curve for the next year, but beyond that I don’t like the outlook,” he said.

“I think the economy is going to strengthen and inflation will rise. We are going to come out of this with moderate inflation and later deal with a much higher rate of inflation.” So in running a bond portfolio, maintaining the unit values through this roller coaster is a source of concern.