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By Scott Burns | 09-01-2010 11:04 AM

Where to Invest in a Muted Recovery

SSgA head of investments Dan Farley says his team is looking for stability of income and returns in areas such as large-cap dividend stocks.

Scott Burns: Hi, there. I am Scott Burns, Morningstar's director of ETF research, coming to you live from Morningstar's premiere ETF Invest Conference.

Joining me today is Dan Farley, SSgA's Global Head of Investments for their Multi Asset Class Solutions team. Dan and his team oversee over $190 billion of institutional money globally.

Dan, thanks for joining us.

Dan Farley: My pleasure.

Burns: So, Dan, you're actually kicking off the conference today, giving an overview of the state of the market. One of the things that we always tell investors is, don't go looking for an ETF first, go looking for an investment idea. And that's why we've actually asked you to come and talk about that.

So, maybe you can give us just a quick sneak preview into your talk today, and let's just jump right into areas around the asset class world, around the globe, that SSgA and your team are finding in favor right now?

Farley: Sure. So I think generally speaking from a backdrop perspective, it's our opinion that we are in what will be a very prolonged but sustainable recovery. We're not in the double-dip camp. We're not in the V camp, but rather something that is going to take several years to work itself out. And so with that, we think that we're going to be in a more muted market return environment.

And so what we've tried to do is, say, let's focus our portfolio on areas where we're going to be compensated for risk, where we're going to be able to help generate more stability of returns. And so what we have done is, currently we're positioned relatively neutral to the stock-bond question, right. So not really taking on a whole lot of equity risk in the portfolio right now, but what we've tried to do is focus in on areas that we think will help investors get paid as we wait out this solution.

Burns: So 90-day Treasuries are not...

Farley: 90-day Treasuries are not the place to be.

Burns: You mean getting 2 basis points is not getting paid?

Farley: No. But say, in U.S. large cap, for example, tilting towards dividends. If we see equity returns over the next 12 to 18 months to be sort of in the mid- to upper single digits, and I can get half of that out of my dividend yield, [that's] a much more stable return.

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