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Notes from the Morningstar Conference

Each June we travel to the Morningstar Investment Conference in Chicago to hear presentations from top mutual fund managers. Many managers of the funds held in Hefren-Tillotson portfolios spoke and shared their latest thoughts.

The most common theme this year was how to approach coming interest rate hikes from the Federal Reserve. The consensus view was that rate hikes would come this year, but would be very measured. Elaine Stokes, one of the managers of the Loomis Sayles Bond Fund (LSBRX) used in many client portfolios, believed the Fed would only do what the markets could handle. This, she believes, will lead the Fed to make slow, steady and well telegraphed moves.

Jeremy Grantham, founder of GMO, the firm that runs the Wells Fargo Absolute Return Fund (WABIX), felt that despite the great returns of most types of stocks and bonds the last few years, the raising of interest rates would be tolerated by the stock market. He cited the reaction of U.S. stock markets to previous rate hikes, where stocks generally did not lose much ground before rate hikes and typically did well after rate hikes. He also spoke of the good returns that typically come during the third year of a presidential cycle.

Greece was also a topic of discussion, with most managers not overly concerned about widespread problems coming from a default in Greek debt. Elaine Stokes of Loomis Sayles viewed it as a potential opportunity – if fears heat up in Greece, that could allow bond managers to pick up good bonds at cheaper prices.

Many managers discussed making selective additions to their equity portfolios, given such strong market performance since the financial crisis.

Steven Romick, manager of the FPA Crescent Fund (FPACX) used in portfolios, said he was focusing his stock picks on the worlds great businesses, firms with great management teams that consistently compound their profits over time. Below that top level of companies, he is not finding much value. With the Federal Reserve poised to raise interest rates, he was particularly concerned about companies that are dependent on borrowing as he felt those might struggle as interest rates and borrowing costs rose.

Rob Lovelace, portfolio manager for the American Funds New World Fund (NWFFX), stressed three key attributes to identify quality fund managers. He felt that superior managers tend to have lower than average fees, strong track records (especially in down markets), and invest significantly in their own funds. These are all traits that we look for in fund managers as well.


Investment Advisory Team

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