How expensive are large company U.S. stocks, the cornerstone of just about everyone’s retirement portfolio? Nuveen’s widely followed Chief Equity Strategist and large cap mutual funds manager, Robert Doll says there are high quality, dividend paying businesses worth owning for long-term value and income.
CONSUELO MACK: This week on WEALTHTRACK, picking the perfect portfolio potion for earnings and dividend growth. Nuveen’s star strategist and large cap funds Portfolio Manager Bob Doll shares his formulas for long term portfolio performance next on Consuelo Mack WEALTHTRACK.
Hello and welcome to this edition of WEALTHTRACK, I’m Consuelo Mack. Two of WEALTHTRACK’s most enduring investment themes in the decade since our launch Have been the power of compounding and the wisdom of diversification. The results over time of compounding, reinvesting dividends, capital gains and interest has been described as the most powerful force in the universe.
For instance $10,000 invested for the last ten years in the S&P 500, without re-invesing dividends and capital gains would be worth $17,318 dollars today. That’s an annualized return of nearly 6% and a cumulative return of 73 %.
But take that same ten thousand dollar portfolio, and reinvest the dividends and capital gains and you would have more than doubled your initial investment to $21,377, and gotten annualized returns of nearly 8% and a cumulative gain of 114%.!
As far as diversification goes the reality is that many investors are not that diversified among different asset classes. And in their stock portfolios they tend to hold hefty chunks of large company U.S. stocks in both actively managed and index funds.
It turns out that was not a bad position to be in over the last decade, especially during the now seven year old bull market when U.S. stocks ended up outperforming many international ones. As we just described $10,000 invested in just the S&P 500, with dividends and capital gains re- invested would have more than doubled your money.
That same $10,000 invested in a portfolio equally invested in the S&P, plus U.S. small cap and mid cap stocks and foreign developed country stocks and emerging market ones would have netted you about $500 more.
In retrospect, for this decade at least, diversifying by size and geography hardly seems worth the trouble! Is it? And what is the outlook for those large cap U.S. stocks that dominate so many portfolios?
This week’s guest specializes in that popular category and has been a WEALTHTRACK guest since the very beginning. He is Robert Doll, Chief Equity Strategist and Senior Portfolio Manager at Nuveen Asset Management where he manages the firm’s large cap equity series which includes running at least nine mutual funds including the traditional large cap value, growth and core funds, three large cap specialty funds: Nuveen Core Dividend, Concentrated Core And Growth and three alternative funds: Core Plus, Equity Long/Short and Market Neutral funds. Doll also writes widely followed Weekly Commentaries and 10 Annual Predictions, for which he recently did his midyear review.
I started the interview by asking Doll how expensive large cap stocks have become?
BOB DOLL: Well, they’re a lot more expensive than they used to be after the stock market’s tripled in the last six years, but earnings have done really well, Consuelo, and therefore their price/earnings ratios or other ways to measure valuation, they’re not all that expensive, and I’d go another step to say relative to other places you can put the money … cash, bonds … stocks are not expensive.