GHARIB: Our guest tonight is buying more stocks than bonds in his client portfolios. He`s Art Hogan, managing director and strategist at Lazard (NYSE:LAZ) Capital Markets. Here`s the Lazard (NYSE:LAZ) Asset allocation — 75 percent stocks and 25 percent bonds. That`s up from last year`s 60/40 mix. Hi Art, nice to have you, happy New Year.
ART HOGAN, MANAGING DIR. & STRATEGIST, LAZARD CAPITAL MARKETS: Susie thank you very much, happy New Year to you too.
GHARIB: Thank you so much. Start telling us why you believe it`s time to boost stock holdings over bond holdings in your client portfolios.
HOGAN: Well Susie, first of all, when you look at that, remember this is a long-term investor outlook and it`s not for someone who is going to need this money in the next three to five years. So that should be
(INAUDIBLE) But remember what`s happened in the last couple years in both the Treasury market and the corporate bond market. We`ve had a flight to safety. What happens there is obviously we`ve seen yields come down, the 10-year yield below 2 percent. A lot of people thinking it`s going to hover around 2 percent all through 2012. That`s the kind of return that`s not going to keep up with the pace of inflation for one thing and another thing it`s not going to be a long-term investment (INAUDIBLE) We want to pare back on that what could be perceived as a bond bubble and get more into equities which still after a year of a great deal of volatility ended the year flat. Remember there is about 60 percent of the S&P 500 that actually pays a dividend yield that`s higher than the 10-year Treasury in the U.S.
So I think those are the two dynamics that you want to think about, whether this is a long-term investors. If you`re close to termination you don`t want to sell your bonds right now and get into equities.
GHARIB: So as you try to boost those stock holdings, what are you looking at, U.S. stocks mostly over international? What`s the mix there?
HOGAN: We`re thinking the growth dynamic in the global economy next year is going to favor the U.S. and certainly the U.S. companies that have a majority of their sales into the U.S. or into emerging markets. What you want to avoid is U.S. equities that do in the 40 percent or more of their end markets being in the Eurozone. We really see a slow, if not a recession for most of 12 in the Eurozone. If you got exposure into U.S. or into some of the emerging markets that are continuing to grow, I think you`re going to do well. Look for dividends. Look for dividend yields. There`s still a lot of great dividend yields out there in the marketplace and look for those companies that are actually category killers, the folks that are doing extremely well and out pacing the other —
GHARIB: Can you give an example or two of the kind of stocks you`re thinking of in terms of dividends or these other factors?
HOGAN: If you look at other factors for example, consumers, we heard a lot from the consumer over the back to school and holiday shopping season. We just got consumer comp sale numbers out. One of the companies that`s doing very well is The Limited (NYSE:LTD). Victoria Secrets (NYSE:LTD) and – Bed –
GHARIB: Bed, Bath and Beyond (NASDAQ:BBBY) .
HOGAN: Thank you very much, that and (Bath and) Body Works (NYSE:LTD). Here`s a company that in large part does well and has continued to do well. And it`s dependent on a consumer that continues to be in the mainstream here. Also look at a company like TJ Maxx (NYSE:TJX). Here`s a company that has one missed comp in 40 quarters in a row. Another company does well in a good economy or bad economy. Two of the companies we like in the consumer discretionary.
GHARIB: Let me jump in. Let me jump in Art because we have less than 20 seconds. What about in terms of bonds? For the investors that still want to park some of their money into fixed income — Treasuries, corporate, munis – what are you recommending?
HOGAN: Again, I think you need to look at corporates. You need to go a little bit out on the risk scale and I think the best thing to do is get in a bond fund that has some balance to it. So you don`t have to make the selection. The still get the bond fund. It puts you out of the risk scale a little bit because your yield`s going to go a little bit higher and let someone else do your homework for you. Treasuries will be 2 percent. They`ll be 2 percent at the end of the year. You want to be a little further out on the corporate scale.
GHARIB: And any disclosures to make on those stock recommendations?
HOGAN: There is not, thank you.
GHARIB: Thank you Art for coming on the program. Appreciate it.
HOGAN: Thank you Susie.
GHARIB: We were speaking with Art Hogan of Lazard (NYSE:LAZ) Capital Markets.