In naming Rod Smyth chief investment strategist for its Richmond, Va., brokerage unit, First Union has taken a proactive step against the bear market.
Mr. Smyth, 39, a native of Ireland, has spent most of his career navigating economic slumps in Asia and Europe. For 17 years he has worked with investment banks and brokerages, primarily in Asia, and during that time he has gained experience with tanking markets.
He was working for Nomura Securities in Japan and as an Asian specialist for Citicorp in New York when Japanese markets crumbled in the mid-1980s. From the late 1980s to 1996 he managed portfolios in Asia, the United States, and Latin America for an Irish bank and was in Tokyo as an investment strategist for Baring Securities when the Asian market nosedived in the mid-1990s.
Wall Street now has parallels "with what happened in the overseas markets in the 1980s and early 1990s," Mr. Smyth said. "History has a tendency to repeat itself. We have lived through bear markets, and we'll live through this one."
He said the first half of 2001 will be difficult but be followed by "calmer waters" - the opposite of what happened in 2000. "We are going to see many of the [market] forces working in reverse," he said. "We believe in the first quarter the Fed will decrease interest rates and go from being the enemy of the stock market to being its friend, and softening the landing."
In First Union's Outlook 2001, the Charlotte, N.C., banking company said the best way for individual investors to weather this market is to shift from tech funds back to blue chip equities and mutual funds, which will be the big winners.
"Our brokers will take this concept and use whatever products they need," Mr. Smyth said. "They will look at mutual funds that specialize in value and use treasury bonds. Once interest rates start to come down, the corporate bond market will do quite nicely."
Other strategists said that, even though a lack of confidence in tech stocks has driven the Nasdaq down, not all their investment products are being abandoned.
Rick Jandrain, chief investment officer for equities at Banc One Investment Advisors, said small-cap and mid-cap funds continue to show positive returns. Since last year, Banc One's mid-cap value fund is up 20.2%, its diversified mid-cap fund 16.1%, and its small-cap value fund 20.4%.
"There always have been opportunities outside of technology, but the tech funds have received all the limelight and publicity in 2000," Mr. Jandrain said. With the investment markets now less explosive, "diversification is key," he said.
He said Banc One is urging its brokerage customers to diversify their portfolios with core mutual fund investments, such as value funds and fixed-income products.
"Our diversified funds are doing well. The more conservative funds are still in the black, but even our most aggressive products are barely under water, despite the state of the market," Mr. Jandrain said. "That is because they are diversified across different equity styles. So while a Nasdaq fund might be down, an S&P mid-cap fund is still up."
Chris Durbin, a managing director at J.P. Morgan Investment Management, said that investment strategists had expected a slowdown this year but that the falloff since Labor Day has been "shocking." Mr. Durbin predicted that the bottom will come in the first quarter. This means savvy investors will need to be aware of when to move in and out of markets, he said.
"Equities will be on the downside in the next three months, but in 2001 equities will be an opportunity over bonds," he said. "Investors will have to pay attention."
But Edward G. "Ned" Riley Jr., chief investment strategist for State Street Corp., said that now, as the market bottoms and investors are most inclined to change their style, is when they should stand firm. It is the emotional investor, he said, who ends up "buying high and selling low."
"Investors need to look at investing as a long-term proposition. Even the best bets falter. If you think investing is about perfection, you are going to be disappointed," Mr. Riley said. "Wall Street falls into the trap of getting overexcited at the peaks and overly pessimistic and overly depressed when the market bottoms."
Instead of making adjustments in their portfolios, Mr. Riley said, inexperienced investors would be best off to get advice from professional money managers and become educated about the way the market works cyclically.
Mr. Smyth agreed that fixed-income products and slower, steadier vehicles are the investment vehicles - at least for the immediate future.
"We are going to avoid the hare and stick to the tortoise who has closed the gap," Mr. Smyth said.
From Our Archive:
- 1st Union to Sell Institutional Products via Advisers - December 19, 2000
- First Union Broadens Insurance Sales Push - December 11, 2000