Originally posted by The Bulletin in Bend, Oregon on March 14, 2018
A Portland-based investment manager reassured high-net-worth clients in Bend on Tuesday evening that good times will continue this year, but the audience met that outlook with skepticism and questions.
Ferguson Wellman Capital Management gave a generally positive outlook for 2018 during an annual presentation at Tetherow Golf Club. The firm has a total of $5.1 billion under management, and $178 million of that is from about 50 Central Oregon clients.
Ferguson Wellman advisers think the U.S. economy will continue to grow and fuel higher corporate earnings, and thus, stock valuations. Last year the firm predicted stocks would rise 7 to 10 percent, Executive Vice President Ralph Cole said. “We think we can get there again.”
Ferguson Wellman made a bad call last year, Cole said. The firm took a middle-of-the-road approach to portfolio management when it should have gone all-in on stocks, especially in emerging markets, he said. “We should’ve been more risk-taking.”
While making the case for a strong economy and stock market, Ferguson Wellman advisers are watching for potential pitfalls. The Federal Reserve’s interest-rate hikes could put the brakes on growth, Ferguson Wellman principal Marc Fovinci said. He quoted the late economist Rudi Dornbusch, who wrote in a 1998 Wall Street Journal commentary, “None of the post-war expansions died of natural causes. They were all murdered by the Fed.”
Fovinci added, however, that the Fed raises rates in response to inflation. “Inflation by any measure is not accelerating,” he said.
Despite Ferguson Wellman’s confidence about 2018, the firm believes the current economic expansion is at its end stage. So its portfolio, which is 45 percent large-cap U.S. stocks, will be weighted toward value plays: 13 percent will go to international stocks and 2 percent will go to “real assets,” such as timberland, infrastructure and agriculture.
Ferguson Wellman has made the same presentation to 16 audiences from San Francisco to Seattle, and the most common question is about President Donald Trump’s administration, Cole said. Piggy-backing on the baseball theme in Cole’s presentation, one member of the Bend audience asked what keeps him up at night about the U.S. team’s manager.
“The president doesn’t run our economy,” Cole said. “They only have so much power.”
Cole, who follows bank stocks for Ferguson Wellman, also responded to an audience member who expressed concern about a Republican plan to rewrite the Dodd-Frank Act, passed in the wake of the 2007-08 financial crisis. “Today our banks are as strong as they’ve ever been, thanks to that legislation,” he said. He said there’s room for revision because Dodd-Frank was written so quickly.
Another audience member asked whether Trump’s steel and aluminum tariffs will accelerate inflation. “Tariffs aren’t a good thing for investors,” Fovinci acknowledged. The new tariffs could slow GDP growth by tenths of a point, he said, but investors should watch for accumulating tariffs and retaliation from other countries. “If there’s anything we’re certain about now,” he said, “it’s uncertainty is high.”
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