Web stories-r1:AMM grid in qxp 12/24/09 9:30 AM Page 20
StateStreetpositionsforweakrecovery
GlobalchiefinvestmentofficerRichardLacaillesaysStateStreetGlobalAdvisersisoverweight
onequitiesfromabottom-upperspectiveandalsooninvestmentgradecredit.Justdon’taskhim
toforecastthegoldprice.
InstitutionalinvestorStateStreetGlobalAdvisorsbelievestheglobaleco- “IfItalktoinstitutionalclients
nomicrecoverywillberelativelyweakandthatfundamentalanalysiswill inAsia,theMiddleEastorEurope,
returntostock-pickingin2010. thereisastarkdivisionbetweenthe
Predominantlyaconservative,passiveinvestor,thefirmtypicallyfavours deflationistsandthosewhoworry
quantitativetechniquestoevaluatemarketsinanefforttodeterminepat- abouttheprintingofmoneyand
terns. howitisallgoingtoend,”notes
Onpresentmetricsitfindsthatequitiesarefairlyvaluedandinsome Lacaille.
casesofferbetterthanfairvalue.Ithasbeenoverweightontheassetclass “Ourtakeonitisnottodeny
sincelastDecember,andturnedoverweightoninvestmentgradecreditthis thatwehavegotseveredeflation-
spring,swiftlyfollowedbyhigh-yieldbonds. aryforcesintheshortterm[the
Althoughithaswoundthesepositionsbackalittle,itstillhasa2%over- nextthreeyears],butifyouhave
weightonemergingmarkets.Itiseffectivelyfinancingtheseviewsbytaking gota20-to30-yearhorizonasa
anunderweightpositionontreasurybondsandonrealestateinvestment client,youneedtothinkaboutthe
trusts(Reits)intheUS. long-terminflationrateandwhatis
Inaninterview,RichardLacaille,picturedright,thefirm’sglobalchief goingtohappen.
investmentofficer,
toldasiamoney.com:“IfyouaresittinginAsia-Pacific, “Ourbeliefisthattherecovery
youfeelasthoughyouhavegotaverysharpV-shaperecovery,with willberelativelyweak.Youhave
economiesrespondingwelltogovernmentstimulus. stillgotalotofcautionoutthere,despitethebouncebackinconsumercon-
“ButalthoughAsiaisverystrong,andtheChinastoryisextremely fidence.Thatisnotgoingtomakeiteasyforpeopletoexerciseleveragein
impressiveintermsofgrowth,it’snotenoughonitsowntogettheglobal thewageareaandinthelabourmarket.
economybacktotrendgrowth.USconsumershavestillgotquiteaburden “Youwillgetpatchesofpricepressureatthesectorlevel,andpossiblyat
togetthrough. thecountrylevel.Butwethinkthedanger[ofinflation],ifthereisadanger,
“Clearlyyouhavegottobeonthelookoutforwhatmightchallengethe isalittlebitfurtherout.”
recoverystory,whetheritisacertainincreaseinunemploymentinwestern Intermsofcurrencies,Lacaillenotesthereturnofthecarrytrade,buthe
EuropeortheUS,ormuchmoresignificanttradedisputesthatwouldchal- alsobelievesthatinvestorsareatriskofbecomingcomplacentaboutshort-
lengethewholeglobalisationstory. ingtheUSdollar.
“Assumingtheydon’thappen,ourexpectationisthatweareinrecovery “Peopleareextrapolatingcurrentconditionsintothefuture.Currencies
modeandthereforeweneedtopositionforrecoveryintermsofourportfo- haveatendencytoovershoot,soitisperfectlyplausiblethatthedollarwill
lios,whichiswhywehavealittlebitofriskonthetable[inequitiesand continuetodepreciateagainstsomecurrencies,notablytheeuro.
investmentgradecredit].” “However,atsomepointthatisgoingtochangeandIthinkpeopleneed
StateStreethasadoptedamoreactiveapproachtoassetmanagement tobecarefulintheircurrencypositionbysayingthatthedollarisalways
thisyearandfavoursacurrentquantitativebottom-upstylewhenitcomes goingtobeaone-waybet.”
tovaluations. StateStreetisenthusiasticaboutlocalcurrencyinvestinginAsiathrough
“Clearlystockpriceshaverecentlybeendrivenmorebytop-downfactors thebondmarketandalsodirectlyintocurrencies“becausefromaneconom-
aspeoplerotatedthroughsectorsortookamoremacrobet,”saidLacaille. icgrowthperspectivethereturnstoinvestorsoftenmanifestthemselves
“Butthisyearitlooksasiffundamentalsarereturning. throughcurrencyappreciationratherthannecessarilyloweryieldsoncredit
“Alotofpeopleleftactivemanagement[duringthefinancialcrisis]in orequitymarkets.
favourofpassive,sothosethatarelefttopursuealphahaveprobablygota “ForclientsinEurope,theMiddleEastorNorthAmerica,Asiancurren-
betterchanceofgettingitnowthantheyhavehadinthelastcoupleof ciesarequiteinterestingbecausetheygiveyouthatseculargrowthstory
years.” andperhapsarenotsohighlycorrelatedwithotherthingsintheportfolio.”
Intermsofinvestmentgradecreditpreferences,StateStreetfavours Intermsofcommodities,thefirmisfollowingshort-termtrendindica-
financialsandbanksoverindustrials,anditisaprettysimilarstoryinpure tors,whichhasledittopreciousmetals,industrialmetalsandoil,whileit
fixedincomeportfoliostoo,althoughitisunderweightonUSagencymort- hasanegativeoutlookonsomesoftandagriculturalcommodities.
gages. ButonethingLacailleisnotpreparedtodoistoforecastthepriceofgold.
“Earlierinthecrisispeoplefeltabitlesscomfortablewithunderstanding “Youhaveastorywhichsaysthatthereasongoldhasgoneupsomuchis
therisksinfinancialsandbanks,andIthinkthatpricedapremiumin,”he becausepeoplearenervousaboutpapercurrencyandthinkinflationmight
noted.“Wefeelwedounderstandthat,andifanythingthatwouldbea bearoundthecorner,whichisafairpoint.
slightoverweighting[forus].” “Butyoucouldmakethatargumentwhateverthepriceofgold.Unlike
StateStreetalsohasaslightoverweightontreasuryinflation-protected otherassetclassesfiguringoutthefundamentalvalueofgoldisverydiffi-
securities(Tips),whichpayafixedcouponthatislowerthanregulartreas- cult.
urybondsbutwhosefacevalueisadjustedtokeeppacewithchangesinthe “Wehaveitasoneofthefamilyofthingswehaveinourcommodities
consumerpriceindex.Hence,asinflationrises,sodotheinterestpayments product.ButIamgoingtohavetodisappointyoubysayingIamnotgoingto
andthefacevalueofTips. forecastthepriceofgold.Itisjusttoodifficult.”
20 DEC2009/JAN2010 ASIAMONEY
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