Equities: Five Wealth Managers Weigh the Market

Top wealth managers at Alabama banks recommend stocks for client portfolios because of stocks’ long-term growth potential. While equities are just one investment option in a wealth manager’s tool kit, they are a perennial favorite, even following the 2008 financial crisis. Following 2013’s banner year of stock market advancement, including a 30-percent gain in the S&P 500, overall growth in 2014 is expected to be moderate at best.

We asked wealth managers at five major Alabama banks to share their views on equities.  Here’s their take on how the market works as a potential investment for the rest of us.

Donald Korn, director of portfolio management at Regions, expects a mid-single-digit percentage for overall stock market growth this year. Investors are viewing equities with relative caution. “With respect to consumer confidence, it declined slightly this spring. However, we do not see a continued decrease as the economy continues to improve, ” he says. “We have a neutral allocation to equities currently, however, would act to increase on any significant correction, assuming the economy continues to grow at 2.5 to 3.5 percentage rate.”

Korn highly recommends equity diversification in domestic and international allocations, but with limited investment in emerging markets. Regions’ investment committee chooses recommended asset classes based on projections and adjusts portfolios in keeping with business cycles. “Currently we are underweight to fixed income in our portfolios, ” Korn says. “But with the economy showing signs of growth, unemployment falling and the Fed cutting back on bond purchases started with Q3, we see rates rising.”

Korn is particularly positive on the domestic energy sector, noting advances in horizontal drilling technology used to access natural gas. “Production has grown significantly over the last several years and driven down prices domestically, ” he says. “The result is an increase in employment in this sector, more energy independence, and the possibility to become a net exporter of natural gas to countries where natural gas prices are two to three times higher.”

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Tank Tankersley.

“From a long-term investor’s perspective, we are optimistic, ” says Tank Tankersley with PNC Bank.

Tank Tankersley, wealth management director at PNC Bank, says the 2008 stock crash will continue to make investors look at equities with greater scrutiny than in years prior to the downturn. “We regularly meet with individuals who are still hesitant to invest, ” Tankersley says.

But Tankersley calls the current investor confidence environment “an even battle between the bulls and the bears.” The stock market gained so rapidly last year, surprising many investors, that equities aren’t growing in value as much this year. “When looking at valuations (currently), we see a market that is neither expensive nor cheap, so prudent fundamental investing needs to remain a focus, ” Tankersley says.

“From a long-term investor’s perspective, we are optimistic.”

Tankersley says PNC tends to avoid high risk in advising clients using, rather, a strategy of fundamental investment. “Our equity selection involves a combination of earnings strength, valuation metrics and sentiment indicators, ” he says. “We seek strong and stable companies at points of reasonable valuation.”

Because PNC values asset protection, it opts for portfolio managers with a track record of “downside protection.” Tankersley points to PNC’s ability to customize investment solutions based on clients’ needs. “Our wealth management platform is a broad and robust array of managers of different asset classes and categories, ” he says. “In appropriate situations, we implement sector rotation strategies for small allocations in a portfolio; our research has demonstrated solid risk adjusted returns.”

John Norris.

“Fear sells, but if you look at the facts, the economy is doing well and the stock market is poised to bring in moderate returns this year, ” says Oakworth’s John Norris.

Photo by Art Meripol

John Norris, managing director and head of wealth management for Oakworth Capital Bank, believes investors are fairly confident as “corporate America continues to bring in good results.” Because of significant market advances, especially in 2013, Norris doesn’t foresee the stock market gaining as much this year. Overall growth of 8 to 10 percent in the S&P 500 is likely as good as can be reasonably expected this year.

“The stock market is not as undervalued as it was in 2012 and 2013. It’s looking fairly valued, so there’s not as much room for growth, ” he says.

Oakworth reduced exposure to small and mid-cap stocks at the beginning of the year, focusing holdings on large-cap stocks. “We told clients we are still bullish on stocks but wanted to take some of the risk out, reducing their exposure to possible market volatility, ” Norris says.

He believes equities will continue to be good investments as the economy continues on its slow-rebound and growth track.

The financial outlook is much brighter than certain TV pundits sometimes portray it. “Fear sells, but if you look at the facts, the economy is doing well and the stock market is poised to bring in moderate returns this year, ” Norris says.

“The economy is in no danger of overheating, and there doesn’t appear to be any chance of a recession anytime soon.”

Steve Sanak.

Steve Sanak’s BBVA Compass team works with clients to find their long-term path to success.

Steve Sanak, regional executive for global wealth for BBVA Compass, says investor confidence is relatively strong. The 2008 crash stunned investors but did no irreversible damage to the stock market, which Sanak calls “adaptive” and “resilient, ” nor to investor confidence.

“The relatively consistent performance of the market in recent years has helped win investors over to put more in equities, especially when their goal is long-term growth, ” Sanak says.

How much of a client’s portfolio should be made up of equities is an individual assessment, however. “The investment process isn’t a short path. It’s a journey and the client’s needs change with life circumstances, ” Sanak says. “We sit down with each client to determine their needs for income and their growth goals. We look at their time boundaries and assess their tolerance for risk.”

Because yields on U.S. Treasury bonds have dropped with rock-bottom interest rates set by the central bank, investors who have needs for income are more interested in stocks that act like bonds, bearing consistent dividends. “And there are a number of other options including corporate, municipal and international bonds, ” Sanak says.

BBVA Compass pays close attention to business cycles, keeping its finger on the pulse of changes not only in the domestic but international economies, Sanak says.

“Our research team takes a global perspective and does extensive analysis.”

Dave Roda.

Most investor sentiment indicates moderate bullishness. Market volatility is fairly low and the economy continues to slowly improve. — Dave Roda, Wells Fargo

Dave Roda, regional chief investment officer at Wells Fargo, has seen more investors moving out of money markets and into equities. While economic growth in the first quarter of this year was slow, he expects we’ll see at least a 2.4 percent increase this year.

“Most investor sentiment indicates moderate bullishness, ” he says. “Market volatility is fairly low and the economy continues to slowly improve. We haven’t had a market correction in quite some time, so we could see one at some point in the case of significant news, such as a geopolitical upset, as in the Ukraine situation, for example.”

Such a correction will be a good time to buy stocks, assuming economic fundamentals remain strong, which they likely will, Roda says. The slow economic recovery since the 2008 financial crisis has had some overall positive effects. “We’ve had some wonderful improvements. Both corporate and personal debt is lower, ” he points out.

Because Wells Fargo is a large provider of wealth management solutions, its clients are able to retain diverse, well-balanced portfolios that balance domestic and international investments, Roda says. Because of the relative stability of the U.S. economy on the world playing field, domestic investments are favored. Some developments of interest for investors include innovations such a wearable technology, expanded healthcare services and biotechnology.

“We’re always trying to identify trends so we can offer the best advice to investors, ” Roda says.

Kathy Hagood is a freelance writer for Business Alabama. She lives in Homewood.

Text by Kathy Hagood

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