Top strategist Richard Bernstein says investors are looking for risk in all the wrong places. He explains where he believes the biggest risk by far is in the bond market.
WEALTHTRACK Episode #1516; Originally Broadcast on October 05, 2018
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RICHARD BERNSTEIN
- CEO & Chief Investment Officer,
- Richard Bernstein Advisors
What’s the biggest risk in the markets today?
As of this week, it appears to be rising interest rates. Stocks tumbled as yields spiked. The S&P 500 fell nearly one percent, its biggest loss since June and the yield on the 10-year U.S. Treasury note hit 3.196%, its highest level in more than seven years.
Most investors are also concerned about the longevity of the bull market and the elevated prices of stocks. The U.S. stock market hasn’t had a bear market correction of 20% or more since its March 2009 low. And stock prices are at the high end of their historic range.
Just look at the Shiller PE Ratio, the cyclically adjusted price-to-earnings ratio, also known as CAPE that Nobel Prize-winning economist Robert Shiller created years ago to put the price-earnings level of the market into longer-term perspective. CAPE takes the current price of the S&P 500 and divides it by the average of inflation-adjusted S&P earnings over the previous 10 years in order to smooth out cyclical fluctuations in corporate profits.
The CAPE at over 30 is at the second highest level since it’s been calculated starting in the late 1880s. It’s higher than it was in 1929 before the market crashed although it’s considerably lower than its peak in the tech bubble in the late 1990s.
This week’s WEALTHTRACK guest says by focusing on the stock market investors are missing where the real risks are. Strategist and investment advisor Richard Bernstein recently released a report “Looking for Risk in All The Wrong Places”.
He says by far the biggest risks are in the bond markets.
Since inflation bottomed in June of 2016, investors have continued to pour money into bond funds and ETFs. Higher inflation caused by an accelerating economy has led to higher interest rates. As bonds adjust to higher interest rates their prices decline.
That is exactly what has happened. As Bernstein points out bonds are the only asset class in the U.S. that has experienced negative total return, that’s with interest added, since inflation turned up. He predicts much worse results ahead.
Richard Bernstein is CEO and Chief Investment Officer of Richard Bernstein Advisors which he founded in 2009 and now oversees or advises nearly $10 billion dollars in assets. More than $6 billion is in its equity and multi-asset ETF strategies available as separately managed accounts through financial advisors. Morningstar now ranks RBA among the ten largest ETF managed portfolio strategists.
RBA also manages mutual funds, including the flagship Eaton Vance Richard Bernstein All Asset Strategy fund.
Bernstein developed his top-down, macro strategy approach using quantitative analysis as Chief Investment Strategist at Merrill Lynch where he was voted to the prestigious Institutional Investor“All-America Research Team” for 18 years and inducted into its Hall of Fame.
On this week’s show, Bernstein explains why he believes bonds are at risk for a significant bear market but stocks are not!
As always, if you miss the show on Public Television, you can watch it at your convenience on our website. You’ll also find my weekly Action Points there, plus our guests’ “One Investment” ideas. Also, you’ll find our web exclusive EXTRAinterview with Bernstein there.
If you would like to take WEALTHTRACK with you on your commute or travels, you can now find the WEALTHTRACK podcast on TuneIn, Stitcher, and SoundCloud, as well as iTunes. Find out more on the WEALTHTRACK Podcast page.
Thank you for watching. Have a great weekend and make the week ahead a profitable and a productive one!
Best regards,
Consuelo
PUT SOME INFLATION BENEFICIARIES IN YOUR PORTFOLIO
BUILDING INFLATION PRESSURES:
- Growing economy
- Higher interest rates
- Tight labor force
- Increasing debt
- Punitive trade policies
PURCHASING POWER PROTECTION
- Investments that keep up with inflation
- Companies with a history of rising dividends
- Dividend Aristocrats are S&P 500 companies with history or raising dividends for 25 consecutive years or more
INCREASING ANNUAL DIVIDENDS
- 25 YEARS OR MORE: PROSHARES S&P 500 DIVIDEND ARISTOCRATS ETF (NOBL)
- 20 YEARS OR MORE:SPDR S&P Dividend ETF (SDY) (Chosen from S&P 1500)
No Bookshelf titles this week.
INFLATION BENEFICIARIES
Diversify portfolio with pro-inflation investments
- Commodities underowned by individuals
- Morningstar recommends: iShares Commodities Select Strategy ETF (COMT)
No stock mentions in this episode.
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PACTIVE MANAGEMENT
Merrill Lynch’s longtime top ranked investment strategist Richard Bernstein launched his own investment advisory firm, Richard Bernstein Advisors(RBA) in 2009 to apply his “top-down”macro strategy and quantitative analytical skills to real portfolios. He decided to combine his active asset allocation approach with passive investment instruments such as ETFs in what he trademarked as Pactive Management, which he believes is the wave of the future.
