U.S. MONEY MANAGERS MAY LEAN TO STOCKS VS BONDS
U.S. money managers and investment
advisors said they expect stocks to continue to outperform
bonds, but some are hedging bets by keeping roughly half of
portfolios in bonds and cash for quick investment shifts.
    Merrill Lynch said its new asset mix report due today will
urge weightings of 50 pct stock, 35 pct bonds and 15 pct cash
versus 40 pct bonds, 35 pct stock and 25 pct cash previously.
    "We believe an overweighting in stocks is warranted because
of the positive momentum of corporate earnings," said Christine
Lisec-Tinto, Merrill senior investment strategist.
    Lisec-Tinto, who formulated Merrill's latest asset mix
recommendations with new chief investment strategist Charles
Clough, said there may be some consolidation of recent stock
price gains, but the market appears to have good potential.
    Through Friday, stock prices as measured by the Dow Jones
Industrial Average surged 19.13 pct in 1987. Meanwhile, the 
Shearson Lehman Treasury bond price index edged up 0.4 pct.
    "We believe that the equity market has much more upside
potential than the bond market," Chrysler Corp <C> treasurer
Fred Zuckerman said. He said "interest rates are not coming
down and I would not bet a lot that they will come down
sharply."
    Chrysler's 3.5 billion pension fund last week sold 405 mln
dlrs of corporate bonds in the first of two planned sales of
slightly less than one billion dlrs of corporates.
    Zuckerman told Reuters the proceeds will be used to buy
stock to bring equities to 50 pct or more of the portfolio.
    A roughly even bond/stock portfolio split also is urged by
Wright Investors Service, with 4.25 billion dlrs under
management, but it is more optimistic on bonds than stocks.
    "We'd put half in bonds and half in equities now," said
Judith Corchard, Wright senior vice president. She said the
bond share was lifted from 35 pct in the last three months.
    "The stock market has appreciated sharply and discounted
future corporate earnings extensively," Corchard said. She said
"we're worried about a stock price correction of as much as 10
to 15 pct within six, or possibly even three months."
    Meanwhile, Wright expects bonds to benefit from a half to
one percentage point decline in interest rates by year's end.
    "At this level of the stock market, there is more of an
advantage to being in long-term bonds than in equities, given
our interest rate scenario," Corchard said.
    "The stock market has come a long way in a short time. I'd
be hardpressed to jump into stocks with the Dow near 2300
unless I was really convinced that earnings and multiples will
increase," said a fixed-income securities portfolio manager at
a major money center bank.
    He said the bank has kept bond/equity portfolio mix fairly
stable recently and probably will make no major changes for
months as it awaits economic, oil price and dollar trends.
    "We've seen no real movement from bonds to stocks among our
funds," said George Collins, president of T. Rowe Price
Associates, with 22 billion dlrs in assets under management.
    While he detected no rush into stocks from bonds, either
among the many mutual funds under the T. Rowe Price umbrella or
among outside money managers, Collins thinks stocks are better
investments than bonds at this time.
    "In the near term, the stock market has more prospects for
growth, due to the mixed signals on the economy so far, the
slim chance the Federal Reserve will ease policy and still
heavy debt accumulation," Collins said.
    He expects U.S. stocks to improve further because there is
more corporate earnings potential, nominal interest rates
already are low and there is strong foreign demand for stock.
    Collins said that in funds which include bonds and stocks,
the firm has long maintained an aggressive 75 pct weighting in
equity with the rest in bonds and cash.
    "Our equity managers have taken a slightly heavier cash
position in equity portfolios lately," Collins said.
    "Cash" in portfolios usually means short Treasury bills
which can be readily sold to allow rapid investment shifts.
    Many portfolio managers are working with relatively high
cash positions in equity accounts, often 25 to 30 pct, given  
the belief that there may well be downward price corrections
enroute to higher ground.
    In bond portfolios, the money managers generally showed a
preference for shorter term (10 years and under) Treasury notes
and, to a lesser extent, agency securities, rather than
longer-dated Treasury issues and corporate bonds.
    Since yield premiums of corporate over Treasury bonds are
now the lowest in years, many investors believe corporates are
overvalued versus Treasury and agency issues. Another negative
cited for corporate bonds is the risk of hostile takeovers,
leveraged buyouts and sudden ratings declines that does not
exist with Treasury or Federal agency securities.
    Farm Credit paper was cited by some as undervalued and a
good buy, despite the issuer's well-publicized financial woes.
 Reuter
