Jason Stipp: I'm Jason Stipp for Morningstar. Some of the top minds in investing will be convening in Chicago this week for the 2011 Morningstar Investment Conference. It's a great opportunity for us to hear some latest insights on the market and forecasts.
Here with me to talk about what they hope to hear this week is Morningstar's Russ Kinnel, he is director of fund research; and Christine Benz, she is the director of personal finance for Morningstar.
Thanks for being here.
Christine Benz: Jason, great to be here.
Russel Kinnel: Good to be here.
Stipp: So, Christine one of the things you've mentioned to me that you think will be a buzz at the conference is, what comes next? This has become a more timely question over the last few weeks as some economic data has been less than rosy. So I think a lot of people are going to wondering, where do I put my money next, or should I even be putting money in the market?
Benz: Right. I think we always feel like we're at some kind of an inflection point when we have this conference, but it feels like especially so right now. So is the economy going to strengthen and continue to provide a tailwind for the market or will see the opposite happen. So, I do imagine that a lot of people attending the conference will be looking for some guidance on those questions. Of course people will be looking to Bill Gross get his view on the economy and the bond market, as well as the stock market, because he's been opining a little bit on that.
Then I am also moderating a panel with Ben Inker from Grantham Mayo Van Otterloo and Peng Chen from Ibbotson as well as Ross Levin who is a noted financial advisor. Those three will also be talking about a variety of different asset classes, their long-term strategic take on them, as well as their near-term views.
Stipp: So, Russ some of the bumpiness that we've seen has caused some diverging performance amongst some of our favorite manages, and some of them will also be at the conference. Do you expect they'll be talking about their near-term performance records?
Kinnel: I think one of the great things about the conference is hearing not just from the managers who are red hot, but those who are stumbling and can explain. So, Bruce Berkowitz is having the first rough patch of his 10 years at Fairholme Fund. He is going to be having a conversation with Don Phillips. So, it will really be interesting to hear him get into what's going on there and why he likes those financials. I'll be interested to hear from John Montgomery of Bridgeway Funds; those funds had a really tough two- or three-year period. This year they have been OK, but I think people who are still in those funds really want to hear what's going on, should they have a confidence to stick with them.Read Full Transcript
Stipp: I know Sequoia is also going to be there, and they have had better performance. Are they investing in some of the same areas and just doing it better at least in the near term or what's your take on the performance divergence there?
Kinnel: Well, a little bit. They do have some financials, but they don't have AIG and some of the financials names that have gotten killed, and it's really exciting to see Sequoia because they never talk, so David Poppe is going to be here to share his thoughts, and that's really exciting that we've got some new faces along with our some of our old favorites like Bruce Berkowitz and Bill Gross.
Benz: Also, in the realm of financials Ken Feinberg from Davis Selected Advisors--that firm has long specialized in financials; they've lightened up a little bit over the past few years--but I'd be interested to hear about how he is thinking about that sector. I always think of him as being a very articulate voice on that sector. What are their thoughts on it right now? And also what are the lessons learned? Because I know Davis Selected spends a lot of time thinking about, where did we get wrong? What did we learn from that? So, I'll be interested to hear from Ken Feinberg on that front, too.
Kinnel: Davis Selected and Fairholme are both in redemptions right now. So, clearly people are going to want to hear from them.
Stipp: I think it's a good point, because there is the health of the market and there is also the health of the fund industry. We've seen some various fund flows going to some asset classes and not to some others. What are some trends that we've been seeing, and what do you hope to learn about that?
Benz: Well, we've continued to see a very strong trend toward indexing and ETFs, and so I think Larry Fink who will be keynoting on one of the days will be in a good position to discuss what's going on at his firm BlackRock, because BlackRock does straddle both active investments as well as having a big ETF brand. So we'll be interested to hear what he has to say. We've seen strong outflows, Russ, as you mentioned, from some actively managed funds as well as municipal bond funds, so it will be interesting to get some perspectives on what's going on there.
Stipp: Since you mentioned Muni bonds, I think another theme that we probably will be hearing a lot about at the conference--and there are several different panels approaching it in different ways--is fixed-income and the fixed-income environment. You mentioned Bill Gross. He's going to be one of our keynote speakers, but what do you think are the biggest questions that are going to be out there for bond fund investors that they hope to get some answers to, Russ.
Kinnel: I think munis are huge: Is the risk reward ratio attractive now. There have been some predictions of huge defaults in the muni space. We've got some of the best muni managers as well as Larry Fink, Bill Gross, and some other really smart people who can share. I assume they are going to be a little more constructive than that prediction, but I'll really be interested to hear their take on munis. I think TIPS are another hot area of discussion. If inflation does come back, if interest rate spike, what can we expect from TIPS? I think that's something people will really want to hear about.
Stipp: And Christine, on the asset allocation front, I think a lot of people are looking at their fixed income portions of their portfolios and wondering, how will it hold up? Should I lessen it, should I go more to cash? Should I look for other yielding investments? I think these will all probably be questions that people have.
Benz: Yes, and our colleague, Nadia Papagiannis is doing a session on alternatives to fixed-income assets that deliver a risk-reward profile in line with fixed income, but that are not fixed income. It will be interesting to hear from some of those managers. I guess the question for that category overall, something I've been grappling with is, OK, so maybe you can deliver something like the risk-reward profile of fixed income, but are you going to charge me 2% for it?--as so many of these alternatives vehicles do. I think that that's a question that we'll explore at the conference.
Stipp: So what role do they play and…
Stipp: How do you know, what's a good alternative investment beyond that, and how do know what to avoid?
Benz: More broadly, how do you classify an alternative or what is an alternative to you and your firm. I know that that's a topic that we're going to be exploring at my asset allocation panel.
Kinnel: How do you fit that into a portfolio?
Stipp: Another question has to do with emerging markets, and this is not an alternative, but it is an asset class that people are increasingly looking to and I think we've seen that in fund flows. Russ, what do you think are the big questions surrounding emerging markets right now?
Kinnel: With the latest U.S. economic data being really depressing, people are naturally looking to emerging markets for that growth, and so we want to hear what's going on with China; what do the valuations tell us? Are emerging markets so high priced that growth is already priced in and really it's a high risk, or is it the place to be because that's where the healthy economies are, that's where the national deficits are not out of control. So it really will be interesting to hear--we have an Asia specialist from Mathews who is going to come in and give a talk on where they're finding opportunities. So it should be really interesting to hear what's the risk profile from the experts?
Benz: I also like that we have got that one panel of managers who are more generalists internationally, so David Herro, Bob Smith from T. Rowe Price. That's why I always love to hear from folks like that about emerging markets. They have the latitude to go anywhere. Do they like emerging markets now or don't they?
Stipp: So certainly no shortage of questions--lots of issues that would be raised. Hopefully we'll have lots of great answers. Thanks for joining me with your top ideas for the things you're looking for, and I look forward to hearing from you both next week.
Benz: Thanks, Jason.
Kinnel: You're welcome.
Stipp: So please be sure to stay tuned for our continuing coverage of the Morningstar 2011 Conference. Thanks for joining us today. I'm Jason Stipp for Morningstar.