over the Next Decade
May 8, 2012
Richard Bernstein is the chief executive officer of Richard Bernstein Advisors LLC, an independent investment adviser focusing on longer-term investment strategies that combine top-down, macroeconomic analysis and quantitatively-driven portfolio construction. The firm sub-advises the Eaton Vance Richard Bernstein Equity Strategy Fund, and the Eaton Vance Richard Bernstein All Asset Strategy Fund. Prior to founding the firm in 2009, Mr. Bernstein was the chief investment strategist at Merrill Lynch & Co. Prior to joining Merrill Lynch in 1988, he held positions at E.F. Hutton and Chase Econometrics/IDC. A much-noted expert on equity, style and asset allocation, Mr. Bernstein was voted to Institutional Investor magazine's annual "All-America Research Team" 18 times, including 10 as the top-ranked analyst in his category. He was recently inducted into the AART Hall of Fame – a recognition accorded to only 45 of the approximately 15,000 eligible analysts.
I spoke with Mr. Bernstein on April 30.
What is your general outlook for this year, starting with the US equity market?
We don’t make formal forecasts, such as whether the Dow will hit a certain number. But people should be looking in the US for above-average returns.
The US stock market is not expensive. I know that one can make a case that P/E ratios seem high, but you have to adjust them for interest rates, and if you do that they look actually quite normal – better than normal – regardless of the P/E you use. You can use the regular P/E or the Shiller P/E. The market looks at worst reasonably valued, at best downright cheap.
We are still getting huge outflows from equity mutual funds. When has a bull market ended with huge outflows from equity mutual funds? That has probably never occurred.
The corporate sector in the US is the strongest corporate sector in the world by far; nothing else is even close. Where people should be worried is not in the United States. They should be worried around the rest of the world. Most investors still think our problems are just US problems, and that the rest of the world is fine. People are starting to realize Europe has some problems, but what people still don’t have an inkling of is that the biggest problems are yet to come, and they are in the emerging markets.
We are still in the early stages of decade-long outperformance for US assets. The line I always use is the S&P 500 has now outperformed BRIC equities for more than four years, and nobody knows about it. Anybody who knows about it says it can’t possibly last. Yet it just keeps going on, and on, and on.
This is what bull markets are made of – improving fundamentals that people just don’t believe. That’s what we’ve got in the United States.
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