Ready for the rebound: Money managers offer different paths for making the most of it

Written by Tom Henderson
Published by Crain's Detroit Business – February 22, 2009

Local money managers say the economy will continue to worsen through the first half of the year, but surviving and thriving through stomach-turning market behavior is indeed possible.

In fact, they expect to see their clients make money this year by homing in on the right industries.

Long term? Markets always rebound, they say, and this one will, too — if not later this year, then next year.

But there's more to it than that. Because this recession has been the steepest since the Great Depression, the rebound should be the steepest, too. It will be exhilarating and fortunes will be made, said Sam Valenti III, a money manager for more than 40 years and chairman and CEO of Bloomfield Hills-based Valenti Capital L.L.C., which manages money for wealthy families.

“There will be opportunities all over the globe. Everything went down at the same time, and they'll come back at the same time. When the recovery comes, it's going to come hard and fast. There are going to be tremendous profits,” said Valenti, who joined Taylor-based Masco Corp. at 22 in 1968 to run its pension fund. He is also president of Masco Capital Corp., which manages Masco's pension-fund investments and other investments, and is a former chair of the state's pension fund board.

But first, there will be more serious dips ahead, he said. The stock market may very well test its lows of last fall in the first or second quarters, and layoffs will continue to make headlines. The economy will start recovering in the third quarter, but it may take well into the fourth quarter before shell-shocked investors and consumers start investing and spending again, with some sense of confidence.

Meanwhile, Valenti said he is investing clients' and pension money in medical device companies, biotechnology, semiconductors and highly rated corporate bonds. “Look for companies with cash on their balance sheets and a stable demand for their products,” he said.

Other wealth-management executives are pointing to corporate bonds, specific commodities, health care or other investment vehicles as safer havens for clients who are trying to make the right choices in uncertain times.

“Things could get worse before they get better, but we try not to time the market. We try to stay fully invested,” said Joe Skornicka, senior portfolio manager at Birmingham-based Munder Capital Management, which has $15 billion in assets under management.

That includes, he said, investing in property and casualty insurers, health care and overweighting consumer staples.

Examples of stocks he likes: Abbott Laboratories (NYSE: ABT), CVS Caremark Corp. (NYSE: CVS), J.M. Smucker Co. (NYSE: SJM) and Wabtech Corp. (NYSE: WAB).

Abbott and CVS are in health care; Smucker makes a wide variety of home consumables, including Jif peanut butter and Folger's coffee; and Wabtech, a supplier of technology and services to the rail industry, is a clean tech company.

Jonathan Citrin, CEO of Southfield-based CitrinGroup L.L.C., a boutique wealth-management firm with $60 million under management, up from $40 million at the end of 2007, said it's important for advisers and clients to think logically about economic cycles.

“Emotionally, it feels horrible now, but there are huge opportunities out there. You just have to be willing to ride it out,” he said.

Citrin, who said the growth in his business last year came from clients leaving large troubled firms in the headlines, said he likes metals such as tin and lead, oil and gas, South Korean and Malaysian stocks and, as a hedge, gold.

“We sold oil and gas on the way up, when oil got over $100 a barrel, and now we're buying it back,” he said. “Diversification is key, now more than ever. The days of relying on U.S. large-cap stocks are over.”

In addition, David Sowerby, portfolio manager and chief market analyst in the Bloomfield Hills office of Loomis Sayles & Co. L.P., said federal stimulus money will eventually help repair the broken market system. Because banks have yet to start lending, all the federal money that has been pumped into the system has merely formed a huge clog, “but eventually the efforts will be stimulative,” he said.

If they do lead to inflation, he said it won't be for at least two years.

Sowerby said simply refusing to bail out is a smart move.

“As painful as this market has been, people are still being rewarded for not capitulating,” he said.

Bill Camp, president of Bloomfield Hills-based LS Investment Advisors, said that despite market turmoil, he still likes stocks long-term, including those in emerging markets and some in the U.S., including McDonald's Corp. (NYSE: MCD), and Apple Inc. (Nasdaq: AAPL). “Fear has given us this misconception that all companies are in trouble,” he said. “These companies both have excellent cash flow, little debt and strong balance sheets."

For those with less risk tolerance, he recommends high quality corporate bonds and U.S. Treasury Inflation-Protected Securities, which pay off in the event of inflation, “which is a good bet because all the government stimulation should eventually lead to some inflation,” he said.

George Wells, president of Auburn Hills-based Legacy of America Inc., which offers advisory service to retirees with $500,000 in liquid assets, likes fixed annuities, fixed index annuities and closed-end mutual funds because of his clients' low risk tolerance.

Unlike other advisers, he thinks corporate bonds are too volatile. “What's high-grade mean? Companies that were high-grade a year ago aren't today.”

But Christopher Ruth, the chief investment officer at Comerica Asset Management, which manages investments for foundations and endowments and individuals with at least $500,000 in liquid assets, said he has “locked up some very attractive yields” in corporate bonds as a result of historic spreads between the low yields of U.S. Treasury bonds and the high yields of corporate bonds.

“These are once-in-a-generation spreads. The key is high-quality,” said Ruth.

Ruth likes a number of U.S. stocks and focuses on those that pay reliable dividends, including H.J. Heinz Co. (NYSE: HNZ) in consumer staples, Florida Power & Light (NYSE: FPL) in utilities and ExxonMobil Corp. (NYSE: XOM) in energy.

“These will give you nice yields along the way even if the economy continues to falter,” he said.

Harry Cendrowski, managing director of Bloomfield Hills-based Prosperitas Group L.L.C., a wealth-management firm whose clients generally have a minimum of $10 million in liquid assets, said he likes AAA and AA corporate bonds.

With returns ranging between 10 percent and 14 percent, “the risk-return ratio is good,” said Cendrowski.

Anne MacIntyre, president of the financial services group at Mt. Clemens-based Community Central Bank Corp., said that beyond the potential returns from making the right moves now, the real benefit of this recession isn't just the financial opportunities it will eventually provide. McIntyre said it is in old lessons relearned.

“If a good thing comes out of these markets, it's that people have learned the importance of saving,” she said. “For the first time in a long time, I'm getting calls saying, 'I know my portfolio is down, but I want to come in and figure how I can save.' I hope people remember it this time.”

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