One On One With Stephen Wood, Portfolio Strategist with Russell Investment Group
Tuesday, June 27, 2006
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SUSIE GHARIB: General Motors shares also pulled down the Dow. The stock skidded almost 7 percent on concerns about sliding sales. The auto maker said that June would be its best retail sales month, but when comparisons are made to last year, it would be quote brutal. Last June GM launched its incentive program that gave employee prices to everyone, sparking a price war that moved cars but dented profits. Now, GM is taking a different tack. Today it also announced a limited 0 percent financing offer for some selected models. That`s only good for a week. Joining us now to talk more about GM and the markets, Stephen Wood, portfolio strategist with the Russell Investment Group, which manages the Russell market indices and does money management for institutional investors. Hi, Stephen.
STEVEN WOOD, PORTFOLIO STRATEGIST, RUSSELL INVESTMENT GROUP: Good evening. How are you?
GHARIB: I`m fine. Let`s just start talking a little bit about General Motors. For your portfolio, is GM stock a buy at $26 a share?
WOOD: You know, this is something that we`re getting not a lot of good information from the managers that we hire. Russell is a multi-manager or manager`s portfolio. We`ve liked transportation for a number of quarters now but automotive and General Motors specifically is something that our managers haven`t really had a big position in.
GHARIB: Let`s talk a little bit about the overall market. What`s your take on what`s going on with the market? How do you explain the volatility that we`ve been seeing?
WOOD: I think we`re still waiting on the Fed. You know, the story is getting kind of old. And it`s getting a little boring I think for a lot of people. That`s really where we are. But, you know, the model that I`m looking at and what I see in the market is I don`t know that the fundamentals of the economy and I don`t know that the fundamentals of the stock market have changed dramatically since January of this year. So I think there`s a lot of sentiment. There`s a lot of worry in anticipation of what the Fed is going to do. But I`m not convinced there`s been a material change in the underlying fundamentals of the market.
GHARIB: All right. So you`re saying waiting to see what the Fed is going to do. So let`s say tomorrow as people are expecting that the Fed does raise interest rates. Then what happens? Does that mean that investors will feel that there`s less uncertainty, there`s less volatility or is it going to be more of the same?
WOOD: I think that it`s not so much does the Fed raise interest rates. I think the question is, if the Fed raises interest rates, what happens to the economy because stocks look attractively valued right now. But if the Fed goes too far and causes a recession and if corporate earnings roll over, then stocks could look pretty expensive. So what I would see right now is not the interest-rate argument so much as does the interest rate cause a recession.
GHARIB: Should investors be concerned about inflation? Is it a serious problem for the companies and share values of corporate America?
WOOD: You know, given how high oil has been and for how long it`s been that high, I think it`s somewhat amazing that inflation has been as tame as it has been. Core inflation is a little bit high, but historically speaking it`s still in a relatively good range. I think that the Fed is probably hopefully going to move into a data dependency that they`re not going to raise interest rates and forget about the economy. But I think that the inflation that we`re seeing right now is at the high end of the range, but it`s still probably acceptable from what the Fed is looking to accomplish.
GHARIB: Stephen, you told me that you are restricted about talking about individual stock names and recommendations, but can you tell us a little bit about some of the investment themes that you`re pursuing for your portfolios.
WOOD: I`d be happy to. I think that the big theme that I`d like to stress with investors that work with Russell investments is, I don`t know that there`s been a material long-term change so for longer-term investors, I don`t see the last six weeks as being that difficult. For short-term traders, it`s been a terrible six weeks. I think not having enough stocks, getting spooked by short-term volatility is going to leave a lot of people with too few stocks in 2007.
GHARIB: What are some of the sectors that you like?
WOOD: We would be looking from a capitalization perspective, we would look larger cap, mid to large cap. We would like large cap growth. We still think producer durables, certain areas of technology look attractive right now. But if you look over the last six years, small cap values to give you an example, has outperformed large cap growth by about 25 percent annualized for the last six years. That means that there are certain sectors in the market that look attractive. For a long-term investor you`ve got an additional opportunity to rebalance.
GHARIB: All right, we`re going to have to leave it there. Thank you, Stephen, for coming on the program. We appreciate it.
WOOD: Thank you very much.
GHARIB: Stephen Wood, portfolio strategist with the Russell Investment Group.
