Doll Favoring Energy, Tech & Health Services

April 27, 2009 Do you see the U.S. outperforming foreign stocks going forward?

Doll: Yes, we think the U.S. will continue to outperform as it has for the past 15 months. But that's compared to other developed markets across the world. Emerging markets are likely to continue to do well and have fewer problems with credit and financial systems than most developed countries. So we think emerging markets will keep leading the way, even over U.S. stocks. How do you view China given recent revelations about apparent high-tech espionage efforts against U.S. infrastructure and military projects?

Doll: The political relationship among the current and emerging superpower will always be tricky. On the one hand, they need each other. At the same time, each is looking out of the corner of their eyes. The U.S. needs China to buy our Treasuries and China needs the U.S. for its consumption. So it's an unholy alliance. How do you see China as an investment at this point?

Doll: We're reasonably constructive on China as a whole. We think the economy has bottomed there as well. But its stocks have run up a lot in a hurry, so we'd prefer to invest in that market on a pullback. We're weighting China in our models at slightly higher than benchmark levels at the moment. How do you view alternative energy plays?

Doll: They're an interesting concept with interesting stories. And eventually, we believe they'll turn into interesting investment opportunities. But generally, this is an investment theme that has been pretty picked over at this point. So we're not rushing to buy into that part of the market. On the edges in bits and pieces, there are some interesting stories left. But at these prices, we'd prefer to wait for a pullback. How about gold and hard assets in general?

Doll: Investors need gold as a piece of their portfolio. For all that ails us, gold is a good hedge. We have significant positions in gold right now. But if we didn't, we'd be buyers now in that market. Generally, we feel that as the world gets back on its feet, demand for commodities will grow. We think you've got to be careful about your entry points. But for many commodities, we think we've seen the lows. What areas of fixed income do you favor?

Doll: Our long-term view is that Treasury yields will eventually move up. But that's a process that won't happen overnight. In fixed income, we think spreads are wide enough to make corporates worth owning on a risk-return basis. And we also think that the risk profiles of municipals are appealing given their current spreads over Treasuries. The downside risks of municipals seem to be priced into that market. If a depression hits, of course, all bets are off. But that's not something we're seeing as likely in our forecasts.



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