Individual Investors

Transcript is as follows:

Interviewee 1: Sandy Lincoln
Title: CIO
Company: BMO Asset Management

Interviewee 2: Robert Pavlik
Title: Chief Market Strategist
Company: Banyan Partners

Channel: CNBC US
Date: December 27, 2011
Time: 1:15 PM ET
Duration: 4 minutes 11 seconds

Interviewer 1: Tyler Mathisen
Interviewer 2: Amanda Drury

Tyler Mathisen
The S&P 500 is up about 1-1/2 points today, and that's kind of a metaphor for the day, for the year, excuse me. The S&P is on track now to close out 2011 with a gain of, woop-dee-do, seven-tenths of 1%, [the] smallest percentage move in four decades. So will 2012 be a better year for investors? As volatile? Better. What? Which? Bob Pavlik is here; he's Chief Market Strategist at Banyan Partners. And Sandy Lincoln, he is Chief Market Strategist at BMO Asset Management. Alright Sandy, let me turn to you. You say to watch out in 2012 for the year's best performers from 2011, like U.S. treasuries, like high-dividend large cap stocks. That's the one I'm most interested in. That has become a very crowded trade. And I wonder where the alternative is in your view.

Sandy Lincoln
Thanks, Tyler. Let me start by just saying, the markets were very fragile in 2011. To pronounce it correctly under "Christmas Story"-- the movie-- parlance, you would say "frah-jee-lay"; everything was "frah-jee-lay." And I think we're in a little different setting now. We've got some metrics, we've got some calibration, we've got some idea of what's going on, a little better sense, a little better perspective. So I think what you want to do is not necessarily get yourself hunkered down for 2012. Certainly the high dividend stocks still have a different place, they have a defensive role to play. But an awful lot of mid cap names, an awful lot of small cap names delivered really good earnings results, Tyler. They delivered really good sales results and their prices went nowhere; in fact in many cases, their prices contracted. So you've got some real opportunities in that space, and I don't think you want to ignore emerging markets. So I just think you want to be careful to continue to think that worked last year in a very defensive, very volatile mode is the same template that you want to apply to the markets as you look at 2012. I think that's a little simplistic.

Amanda Drury
And the three horses that you're backing, Sandy, are Pfizer, [unintelligible]. But I want to pick up what you were saying that you do not want to ignore emerging markets. They kind of have been ignored, haven't they this year. I mean, most of them have sunk pretty badly with the exception of a couple out there like Venezuela and Mongolia, which have kind of off the map in terms of investing anyway. Which emerging markets would you get into?

Sandy Lincoln
Well, I think that's the key. They really haven't just been ignored; they were punished. And an awful lot of these countries are now starting to realize that perhaps they were too heavy-handed with interest rates. They're starting to ease back either in reserve requirements, in the case of China, or outright lowering interest rates in an attempt to reflate, and re-inflate, and reignite, and accelerate their market. So I think I'd be a little cautious perhaps about India. But in general, I think the emerging markets offer a strong opportunity, some very reasonable valuations. You add
a little bit of risk capital there. You add a little bit of risk capital to the U.S. domestic small and mid caps, and I think certainly you layer in some defensive big cap names. But I think that's a better ticket for being prepared for the whole year. I think the markets might get a 9, 10% kind of full year return with a multiple of about $13—paying $13 in stock price for every dollar in profit, and that should produce around a 10% return for the year.

Tyler Mathisen
Very quickly, Bob, do you see it that way, 9-10% year-over-year? Very quickly.

Robert Pavlik
I think 10% could be realistic. But I think if you go with a high beta trade you're probably setting yourself up for a big loss because I think you’re probably going to be--

Sandy Lincoln
High beta is a very unilateral way to look at it. I think you're looking for companies that have really solid fundamentals, really sold sales growth at attractive evaluations. Just because you're taking small cap trade or big cap trade--

Robert Pavlik
Don’t you think the markets going to be impacted by Europe? I mean, the emerging markets are really getting their order flow from places like Europe and from other parts of the world. And so I think that's where you're probably over-exposing yourself.

Sandy Lincoln
My guess would be if you look at that in a secular way, you say, okay, Europe is going to have a recession, 1 to 2?%. Maybe it slows the emerging market growth from 6% GDP to 5. But in no way does it undo the recovery, and thus the attractiveness.

Tyler Mathisen
Unfortunately we have to leave the discussion there and we'll find out next year. Thank you, guys.

Amanda Drury
It just shows when the fate of the world economy is hanging in the balance, it's difficult to make predictions!

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