One on One with Stephen Wood, Senior Portfolio Strategist at Russell Investments
Tuesday, May 27, 2008
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SUSIE GHARIB: Despite a rocky month for the markets, our guest tonight expects stocks to move higher in the second half of this year. Joining us now to explain Stephen Wood, senior portfolio strategist at Russell Investments. Hi, Steve.
STEPHEN WOOD, SR. PORTFOLIO STRATEGIST, RUSSELL INVESTMENTS: Good evening. How are you?
GHARIB: Good, thank you. So you have a pretty upbeat outlook. Give us your analysis on why.
WOOD: I look at it as being guardedly optimistic. There is always the balance of risks and opportunities in any market environment. And right now there's a lot more apparent risks. But I think what we're seeing in a U.S. economy that's been weakening for well over a year now, but it's also the pace of the slowdown, which I think caught a lot of people off guard. So I think, you know, it's still an academic debate whether or not the U.S. will fall into a recession and I think it's kind of split. But coming into the second half of 2008, growth will tend to up tick a bit. We're going to stabilize at an unimpressive rate, but I think right now the bigger risk to my mind is not so much are we in a recession, which is more an academic debate, but for the foreseeable future, it's going to be kind of sub-par growth. So as the U.S. economy does OK, how do investors view that market?
GHARIB: So in this sort of OK economic environment, what would drive stocks higher?
WOOD: I think we're seeing earnings, if you back up financials, which is a big backup, but the write-downs and the charges of financials have dragged down earnings. But earnings are doing reasonably well if you exclude those financial charge offs. Internationally and globally, I think Americans need to come to the recognition that while the United States is still the biggest market and the biggest economy in the world and it will be for some time, it's not the only investment opportunity. So at Russell we've been looking to globally diversify the earnings in our portfolio. So that I think is going to be in a lot of peoples' interests to diversify the earnings stream in their portfolio.
GHARIB: And when you say you're going to diversify and go international, what areas, what geographies are you looking at?
WOOD: I think right now Europe and the euro is obviously shown itself to be a competitive currency. I think they've got a lot of challenges, but they've overcome a lot of obstacles. So I think Europe looks good. I think also emerging markets. You know, everything in moderation, but emerging markets for a long-term investor, that's where we're going to see a lot of the new growth. The United States and Europe combine to about 60 percent of the world's GDP, but the 40 percent which is emerging markets like China, India, Brazil, eastern Europe which often gets neglected in a lot of conversations, that's where you're going to see a lot of the faster rates of growth. So that's where we're looking, as well.
GHARIB: Steve, can you give examples of stocks that are in your portfolios now that are rock solid as far as you're concerned?
WOOD: Rock solid, I don't know about that, but what we're looking at in terms of larger cap consistent growth companies that can do better in a challenging environment. On the technology front, there's names like Apple which is less exposed to the economy and more into product development. I think while we're dramatically under weight in financials at Russell, we have been and I think we'll continue that perspective, there are some names like Goldman Sachs which continues to be a long-term investment and not necessarily a trade. So I think that the global growth story is still intact. So if the structure remains (ph), are still going to take advantage of that. But this is going to be a stock picker's environment. And I think that there's going to be big differences between well-run companies that can execute in the challenging environment and just the rest of the bunch. So for most of investors they want to be cautious.
GHARIB: Steve, of the stocks that you named, Apple and Goldman Sachs, do you own these stocks or do you have any other disclosures you have to make?
WOOD: Again, they're owned in my personal holdings as well as the Russell fund, they are. But also, we've been talking a lot about oil and I think that investors would want to look at names, oil services, exploration, which are going to participate less in commodity volatility and more the next three to five-year capital budget and try to find more oil.
GHARIB: Unfortunately, we've run out of time. We're going to leave it there. Steve, thanks so much for coming on the program.
WOOD: Thank you.
GHARIB: My guest tonight, Stephen Wood, senior portfolio strategist at Russell Investment.
