My Comments: Monday, post #2.
First, you don’t get to manage $37B unless you know what the hell you are doing.
Two, the higher we go, the harder will be the fall. Put a lot of your money in cash and keep it there until the dust settles.
by Jonas Cho Walsgard / February 19, 2017
Global stock investors may have their hopes set too high for 2017.
With rising stock prices, analysts may need to dial back their expectations with companies missing earnings growth estimates posing the biggest risk to equity markets, according to Robert Naess, who manages 35 billion euros ($37 billion) in stocks at Nordea Bank AB, Scandinavia’s largest bank.
“There’s too much optimism,” he said in an interview in Oslo on Wednesday. “It’s definitely too high. I’m pretty sure I’ll be right.”
Stocks have rallied amid signs of stabilization in China’s economy and bets that President Donald Trump will boost U.S. infrastructure spending, roll back regulations and cut taxes. The Standard and Poor’s 500 Index has risen 28 percent since hitting a low in February last year pushing up price to earnings to more than 21 times, the highest since 2009. Positive earnings per share growth is estimated at 15 percent for the S&P 500, according to data compiled by Bloomberg.
“This indicates that it’s a bit expensive,” the 52-year-old said.
Investors shouldn’t be fooled by top line sales growth as profitability is set to be squeezed by rising wages amid declining unemployment, the fund manager said. With margins already high, corporate earnings estimates will have to come down, he said.
Naess and his partner Claus Vorm quantitatively analyze thousands of companies to build a portfolio of about 100 “boring” stocks. They invest in companies with the most stable earnings and avoid expensive stocks, a strategy which delivered an 11 percent return for the Global Stable Equity Fund in 2016. It has returned 16 percent on average in the past five years, beating 96 percent of its peers.
The fund this year has boosted its stake in EBay Inc. while its biggest increases last year included Walgreens Boots Alliance Inc., Walt Disney Co., Verizon Communications Inc. and Apple Inc.
“It’s always better to have stable equities,” Naess said. “Long term you will get better returns. Good companies continue to be good. More cyclical companies have a tendency to stumble now and then.”
And while investors could be overestimating future company earnings, they may also be putting “too little weight” on potential risks from U.S. policy changes by President Donald Trump, such as potential trade conflicts, Naess said.
“There’s still risk with Trump even if the market receives it very positively,” he said. “There’s more risk now than before. The outcome range with Trump is wider.”