There are plenty of lessons to be learned from last year’s financial meltdown, whether you’re an individual building a retirement nest egg or a mutual fund manager trying to maximize returns.
It’s more complex for managers, who’ve got clients to satisfy. Tanking markets could send nervous investors rushing to cash out, just as an abundance of values emerge. Managers have to return clients’ money, which can mean passing up on the good buys and selling into a falling market to meet redemptions.
The turmoil left managers striving to rebound from humbling experiences, and searching for new ways to operate. Here, two fund managers and a bond strategist share their views :
Robert Turner, chairman, Turner Investment Partners: As an expert in technology stocks, Turner had no inkling that one of his favorites, Apple Inc., could tumble so steeply with the rest of the market. But Apple’s stock started 2008 just under $200 a share, and ended it at just $85. This year Apple has been a star, its stock back up to nearly $185.
So what drove the price down so sharply? In part, it was something Turner hadn’t accounted for: A recession rooted in the subprime mortgage crisis triggered events that reverberated to seemingly remote areas like technology. The credit crisis became so pervasive that hedge funds and many institutions were cut off and suddenly looking for cash to meet obligations to investment clients, pension plan participants, and university operations.
Often, that meant selling favored stocks, like Apple, which sent stock prices reeling.
The forced sell-off also extended to normally recession-proof companies like surgical supply manufacturers that could no longer sell to hospitals suddenly unable to secure credit.
At Berwyn, Pa.-based Turner, the painful experience led to a greater emphasis on big-picture economic trends - the kind of forces that can pull down a stock regardless of the company’s fundamentals. Each Thursday, Turner’s investment team leaders gather to consider strategy, with a greater focus on the broader impact of any economic storms that may be brewing.
That’s a new way of thinking compared with March 2007, when Turner Investment published a paper titled “Subprime Mortgages: Way Past their Prime’’ - suggesting early troubles would balloon. But back then, Robert Turner didn’t see a connection to technology.
Now he knows.
Tony Rodriguez, head of fixed-income strategy at First American Funds: It’s hardly news that China is looming larger on the world economic stage. Lately, Rodriguez finds himself considering China’s next moves more frequently as he devises bond strategies heavily influenced by global growth expectations. Not so long ago, he concentrated more heavily on US markets.