Nuveen Asset Management's Bob Doll Talks Fed Raising Rates, Being Bullish On The U.S. Economy And The Tech Sector
Deep value investor Tim Melvin had the chance to speak to Nuveen Asset Management's Senior Portfolio Manager and Chief Equity Strategist Robert Doll last week ahead of the ENGAGE 2015 International Investment Education Symposium being held at Wayne State University starting on March 26.
Mr. Doll provided his insight on a wide range of topics in the financial world.
An audio recording of the interview can be found here.
Tim Melvin: We have with us today Bob Doll of Nuveen Investments. He has the rare double position of being the Chief Market Strategist and the Portfolio Manager at the firm. Mr. Doll, thank you very much for taking some time to speak with us today.
Bob Doll: Happy to do.
Tim: Okay. Now, coming in 2015, you were pretty bullish on the economy and the domestic equity markets with three months in, is that still the case?
Bob Doll: Yes. Our read was, after the first time since the great recession we are more constructive on the economy than we are on the stock market. Constructive on stock strikingly will outperform bonds and cash and commodities inflation again this year like last year and the year before, is the economy that is operating on more cylinders we've seen in nearly a decade.
Tim: Okay. Now, the big question we're just going to go ahead, we're just going to do it at the top, get it out of the way, does the Fed raise rates in 2015? There's been some skepticism from some market participants that they're actually going to be able to pull this off.
Bob Doll: Yeah. My answer is almost a 100% yes. It's been debate exactly when in 2015, but the facts are that the Feds fund raise is zero. That connotes an emergency. We no longer have an emergency, emergency's long gone and the proper Fed funds rate in this environment is low but not zero and there's a big difference between the two, for that risk alone I think Fed needs to get on with it.
Tim: Okay. Do you think they should do it as soon as the general meeting?
Bob Doll: I have no problem with that at all. It would mean nothing to anybody if they went from zero to 25 basis points. They could put them to 1% tomorrow and other than our psychology, it wouldn't affect our economy at all.
Tim: Yes, that's ... something has bothered me a little bit is when people get so concern about such a small move you kind of wonder what they're thinking. Is it just that they're so used to…
Bob Doll: That's so true.
Tim: --is it just…
Bob Doll: I think it's probably because it's been so long since they raised rates. It's roughly a decade and so a lot of people don't remember what that feels like.
Tim: Yeah, it scares me a little that there's actually people out there running money and trading money that have never seen an interest rate increase.
Bob Doll: Yes, that's right, and when it happens they'll find out they'll live to see tomorrow.
Tim: Okay. So you're pretty bullish on the US economy. You think we'll kind of model along here. Do some of the recent numbers that we've been seeing bother you at all, in that forecast?
Bob Doll: Yeah, its good. I don't expect a runaway economy, I think they're going to be, you know, some good numbers and not so good numbers and of late we've seen some softer numbers. Part of that is related to the fact that February was a tough weather month in many parts of the country and part of it is a phase of growth we saw in parts of 2014 in bar charts just aren't sustainable.
Tim: Okay. That makes sense. What do you see as right now is the major risks to the US economy?
Bob Doll: I think the biggest risk is what transpires overseas. That is to say, is there enough troupes overseas for the rest of the world to, in some ways, attempt to catch up to the US. Our exports are challenged. That's an important part of our economy.
Tim: Sure! You made mention I think in this week's commentary that, you know, the following oil prices are a bit of a risk to us as well, aren't they, in a short time?
Bob Doll: Yes, they are and I think oil price drop is as much a function of weak economy house but US as anything else, China in particular. China is the biggest incremental user of most commodities including oil and when their economy is growing more slowly, they just need less of it.
Tim: Yeah. I sure do wish I owned an oil storage facility right about now because those fellows are making some money.
Bob Doll: Yeah. Yeah.
Tim: I understand that Cushing 70% is full which I don't think I recall in my lifetime.
Bob Doll: I guess that's probably right. Many would say there's so much oil floating around in Greece, and places on the planet than ever before.
Tim: Now, can we continue to stay decoupled from Europe and the rest of the world? We've done a nice job that we're often referred to as the nicest house in the neighborhood, does that matter if the neighborhood continues to decline?
Bob Doll: So, it does matter. Having said that, 88% of our GDP in the US is domestic and so, what happens in the US is more important but we can't ignore things overseas. The good news is we're seeing a little better news out of Europe over the last month or two and let's hope that it sustains itself because Europe's a pretty important part of the rest of the world.
Tim: Right now, you know, Europeans have now decided that they're going to put austerity in the rearview mirror finally and try quantitative easing and indeed, they started buying bonds back. Is this going to work?
Bob Doll: Yeah, I think it's like putting a gasoline in the gas tank, it enables the car to get further down the road. This is something Europe needed, I'm not sure it's sufficient, it was certainly necessary. I suggest there's structural problems for Europe to address and we all know these CP is not exactly early in the quantitative easing process.
Tim: Okay, alright. Now, when it comes to the US markets, how do you think we're going to do the rest of the year? Is it going to play out…
Bob Doll: Surely,it's going to bea more anemic year as the stocks will be up but last year was 13%, the year before was 31%, I don't see those kind of returns. Earnings growth is slowed and the valuation level have moved up and probably have a whole lot further to go.
Tim: Okay. Now it seems to me that we're getting a little more sensitive to news, the markets are always a little bit hyper-sensitive to news flow, but it seems to be more so right now. Are you seeing the same thing at all?
Bob Doll: Yeah. I think there's a lot of theory investors out there. You know, I use the phrases the least lead economic recovery at least during the whole market of my career and as a result, there's a lot of people who are climbing those proverbial walls of worry.
Tim: Okay. Now, what do you see is the major risks to a positive US market performance this year?
Bob Doll: It's going self sufficient, I think its the answer to that question, my guess is yes but, the rise in dollar and falling oil price are both challenging that assumption.
Tim: Yeah, we've seen the year-end estimates come down to just 1.7% in 2015 there was a substantially higher coming into the year, and all the growth is in the back half. The next quarter or two doesn't look that strong. Shall we be concern about that? Shall we be watching those numbers kind of close?
Bob Doll: I think so. I think earnings are absolute key and when it comes to energy, from an earnings stand point, long term is greatness. The problem is the hit to energy in related companies is immediate but the benefits to higher spending level by consumers takes time and so the ramp will occur in the back half of the year but the hit is in the first half.
Tim: Yeah. I think people expected an immediate gasoline dividend that just didn't really emerged. Consumer seemed more cautious. I think the credit crisis might be too close in the rearview window.
Bob Doll: That's right. The evidence is that about 50% of the savings have been put in savings and that's unusual, Americans don't save 50% of anything and I think they will end up spending some of that money as time goes by.
Tim: Yeah, any chance they're using that to just pay down credit card debt because personal debt levels are still quite high?
Bob Doll: They are quite high, but of course asset levels are boost up faster than personal debt level so, the consumer net worth is way into all time lag territory, so the debt increase doesn't bother me because that's just blown off even more.
Tim: Okay, very good, alright. Now, big question from my point of view is an owner of Greek bank stocks, does Greece get better?
Bob Doll: So look, Europe debts were more mandates for Greece. I guess we're almost a month into that mandate so three months from now Greece will be back in the headlines again, this is an ongoing situation. You recall that several years ago, Greece was in the headline and we found some several year bond dates so Greece is not out of the woods, there's no question about it.
Tim: Okay. Now, in addition to being the Chief Strategist, you also run several funds there at Nuveen which I think you're the only guy in the industry that's been doing the Chief Strategist and managing funds that I'm aware of. Yours are primarily domestic funds, is that correct?
Bob Doll: It's exclusively domestic funds. I manage nine mutual funds, all US large cap strategies, one investment process, I'll say nine different set of portfolios of construction rules, so exclusive US.
Tim: Okay. So, in the US, right now what are your favorite sectors, let's say, where you think investors should focus their attention?
Bob Doll: We like healthcare, technology, and telecom; healthcare, a good percent of growth area with a prospect for earnings increasing. Technology, a good both defensive and technical area where the US is still the undisputed leader, at least in high technology, and telecom, a defensive sector that has respectable yield and reasonable dividend growth, we prefer it to utility.
Tim: Okay. So you're looking at the large telecoms of Verizon, AT&T, and some of the smaller, perhaps more deadly and risky companies in the sector, will that be a fair assessment?
Bob Doll: Well, we own some Frontier, Centurytel, so it's not exclusively the mega cabinet.
Tim: Okay. How about least favorite sectors domestically right now?
Bob Doll: Utilities like I've just mentioned, energy and materials both of those require pricing power and we are not in a US or global economy that's particularly strong and therefore high pricing power will be hard to come by.
Tim: Do those ever come back? I mean how long does it take for energy and materials, energy is a short term decline but materials has been multiple years now. Does that ever improve?
Bob Doll: Yeah. I think it will look, when the gross rates won't be slow forever, when we have stronger roles, we'll have stronger demand for both energy and materials and other commodities and then prices will go up and that's what these sectors need. I don't think it's any time real soon though.
Tim: Okay. Fair enough. Now when you're picking stocks for your large cap portfolio, what kind of metrics are you looking at? Are you looking at price to pre-cash flow, earnings growth, price to earnings, what's your preferred method for selecting stocks portfolios?
Bob Doll: Yeah, all of the above and a bunch more. My view is we have some pretty sophisticated quantitative models to look at actually fifty six different variables but a different importance for different sectors but we don't focus in one at the expense of others. There's something to be gain by all.
Tim: Okay. Now you come at these because of the stress test for the larger banks. How did they do and what does it mean for the banking sector?
Bob Doll: So we know the banking sector … the regulators set up test to see how the banks are doing in improving their balance sheet and that's what these stress tests are about and the good news is that the banks came through with good grades as it were and some of them are going to be able to increase dividends as a result indicating that the US financial system is making a really good progress almost the near death experience of I can put it that way of 08', 09'.
Tim: Okay. Now let's take on the strategy side for just a couple of seconds. How do you see Latin America develop going for because Brazil, Venezuela, some messy countries down there right now.
Bob Doll: Yeah, they're certainly are market in general which is most of Latin America struggle when global growth slow on commodity prices or when the dollar is rising and so there's challenges there. So ironically, the country that is doing reasonably well is Mexico. It's because of its geographic proximity and willingness to hang his hat on the US.
Tim: Okay. How about Asia? What's going on there? We know China seems to be slowing but, pf course, you know, China only tells us what they want us to know but how do you see Asia developing right now?
Bob Doll: You know, in this part, there are so many places, China obviously is the most important, it is slowing down, I think China is slowing more than most people think. We still have the Eastern growth rate but not something like the authorities keep telling us. India, as long term, some good promise, I think they're having good structural form election not too many months ago, that's positive as well. There are fortunately other parts of Asia that serve, if you will, the bigger countries in Asia be it be China or India or even Japan are doing reasonably well, so Asia with the exception of the slowing in China has done pretty well economically.
Tim: Just on India for a second, the story there excites me. I mean huge population, pro-business government, but when I run through stocks there I can't find anything that's even, let's call it vaguely reasonably priced. Should that be a concern for investors in the country or…?
Bob Doll: Yeah, no question about it. The good news about India that you and I both citing is that it's not unrecognized and so I think you have to be patient, I think also owning multinational observe that part of the world be they Japanese, Europeans, or US ones is not a bad way to go.
Tim: Okay. Now in a recent interview that I saw with you, you had some comments on Japan and you kind of feel they're going to stay the way they've been for a long time?
Bob Doll: On a secular basis, yes. Typically, there are some good things happening in Japan which help the market there, in some degree, the economy by long term problem is a demographic one the population Japan continues to shrink, the workforce continues to shrink, different immigration rate and you put that all together, that's a secular challenge. That's my long term concern about Japan.
Tim: Okay. Well, that kind of wraps up on the bigger picture stuff. Do you have any favorite kind of specific stock ideas that we can talk about and share with readers and listeners?
Bob Doll: Well, I can mention some names that are in the sectors that I mentioned that are favorable towards so technology, couple names there, Apple computer which many like, we do too. Hewlett-Packard sets some difficulties of late, we still think there's some value there as they re-structured that toward the end of the year. Electronic art which is a mid-sized company that we think has a good gross prospect make sense to us. I've mentioned Healthcare, I would cite the healthcare services there, the big daddy there is the, United healthcare, biotech, just the big broad multi-product companies of interest to us, M-tech and Julia will be the two names there, Pfizer and pharmaceutical space that still have some structuring opportunities in front of us, so, there's half a dozen of some things we need some other sector to be like.
Tim: Okay. Electronic Arts has an active presence here in Orlando and it seems to me that they're constantly looking for new and bigger spaces and to my personal dismay, computer gaming becomes more and more interest to the kids and it's carrying over into the twenty something it appears.
Bob Doll: It sure it. It's hard to meet in that generation that doesn't spend time doing those sorts of things.
Tim: Yeah. I mean my son's twenty six and that's what he does when he comes home from work, makes me crazy.
Bob Doll: There you go.
Tim: Alright. Seems like we've got market, an economy that's better but not really great, just kind of modeling along, pushing forward some opportunities to make money if you're patient and disciplined. Is that sound about right?
Bob Doll: I think that's the right way to put it. The more normal environment statistical market stocks recently celebrated its sixth birthday and for those six years on average US stock market been up 21% a year. That's not sustainable and more realistic set of return requires patience and some discipline.
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