article , video 02-10-2015

Why Equities Should Be in Your Portfolio

What kind of total return could the market produce this year? Portfolio Manager Charlie Dreifus believes owning a portfolio of high-quality companies looks more attractive than the alternatives.


Dave Gruber: How should investors be thinking about positioning their portfolio? How do you see equities fitting in right now?

Charlie Dreifus: With the backdrop that we're facing, and the notion that the market's not inexpensive, I think it's prudent to take sort of conservative options and compare it to your alternatives.

I think in terms of what is a likely return from equities in general, forgetting about stock picking. Hopefully I and others bring skill sets that we can produce greater than what the market's going to produce, but the market could produce an 8% total return this year. And I get that by saying, well, earnings, I think, even with these cross currents, will probably increase about 6%, which is the 100+ year average of the U.S. economy. Some years were a lot higher. Some years were a lot lower. I don't think we're going to be that far from that metric this year. If you add to that 2% either cash or stock buyback yield, you get a total return of 8%.

The 10-year U.S. Treasury is roughly 1.9%; the 30-year is 2.5%. Then you have to sort of ask yourself, if you populate your portfolio with really high-quality, pristine companies, where there's no issue about sustainability and financial risk and ability to pay dividends, let alone increase dividends, I certainly would want to own a basket of securities.

Important Disclosure Information

The thoughts and opinions expressed in the video are solely those of the person speaking and may differ from those of other Royce investment professionals, or the firm as a whole. There can be no assurance with regard to future market movements. There can be no assurance that companies that currently pay a dividend will continue to do so in the future.

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