Monday, March 22, 2010

"The Case for Equities in the Decade Ahead"

Last week I attended a two-day conference on asset management hosted by UBS. I had the chance to hear a number of good presentations from some of the leading asset managers and consultants, including Ameriprise, Callan Associates, and Fidelity.

Franklin Resources (parent company for the Franklin Templeton mutual fund group) also gave an interesting talk. They highlighted a report that they have been sending to investors trying to get more people interested in the stock market.

To get the complete report just click on the title of this post, or go to their website: . Let me just list the five key points:


1.History Favors a Return to the Mean
Investors often assume the worst (or best) will continue—it’s important
to consider long-term market history.

2.The World is Getting Smaller (and More Prosperous)
The world is not only shrinking, but emerging nations are experiencing
growth of the middle class and consuming at a rising rate.

3.Innovation Will Surprise Us...Again
While we should expect change (and never fully do), the real surprise might
be the pace at which it occurs.

4. Quality Companies Are Not Short-Sighted
The market is continually growing and changing, and while some companies
don’t survive this evolutionary process, the strongest benefit from it.

5 Equities Help Protect Purchasing Power
For most investors, equities need to be a part of their investment mix
to help reduce the potential risk in their overall portfolio.

At the end of the marketing brochure, they have this chart labeled "Where Will the Dow Jones Industrial Average Be in the Year 2020?" Basically it just highlights the power of compound interest, but I thought it was worth a review nonetheless.

For example, while most analysts are looking for stocks to be in a low return mode, even if the market averages +4.1% return for the next decade (which hardly seems a stretch, given that the dividend yield on the Dow is 2.6%), the Dow would stand above 15,000 in 2020, or +50% higher than it is today. A return of +7.2% for the next decade leads to a doubling in the value of the Dow.

While I realize that Franklin is trying to draw people to its equity funds, I think the brochure makes several good points if you're trying to figure out asset allocation.