Donald Lindsey has a high-conviction investment idea, and
hes acting on it. As chief investment officer of the
$1.2 billion endowment fund at George Washington
University, Lindsey isnt looking to break into an
esoteric market or load up on a new product. Instead, hes
increasing the endowments allocation to good old U.S.
equities: I still love the asset class, he
Lindsey, who has captained the Washington-based fund since
April 2003, points to three trends that make U.S. shares a
smart buy. First, earnings have far exceeded expectations:
Share prices reached record highs in the second and third
quarters of 2011. Because corporate America has done a great
job of cutting costs, its fattened its profit
Second, technology is boosting productivity. Third, thanks
to their technological prowess, companies both large and small
can now do business globally where economies are strong.
Exports are starting to account for a greater amount
of U.S. GDP, says Lindsey, who oversees a total 50
percent equity allocation.
Exports rose to 13.4 percent of U.S. gross domestic product
in the third quarter of last year, according to Beth Ann
Bovino, deputy chief economist at Standard & Poors,
compared with 12.7 percent of GDP in 2010 and 10.6 percent in
Growth prospects for the U.S. economy Jim
ONeill, chairman of Goldman Sachs Asset Management in
London, forecasts 2.5 percent expansion in 2012 are
driving Lindseys preemptive strike. I believe
were going to see a U.S. renaissance in
manufacturing, he predicts. With transportation and labor
costs rising in emerging markets, Lindsey reasons, more
production will stay onshore. Meanwhile, rising wages overseas
will boost demand for imported goods.
The CIO isnt alone in his view, at least among U.S.
equity managers. U.S. companies have never been in better
shape, aside from the financial sector, asserts John
Buckingham, CIO of $2.2 billion-in-assets AFAM, a manager
in Aliso Viejo, California. A self-described contrarian
who avoids sexy stories, Buckingham says that when U.S.
companies trimmed expenses through layoffs and other
reductions, they posted major productivity gains. He now
expects to see companies looking to grow rather than
Relatively speaking, U.S. equities have put in a strong
performance of late. Yes, the S&P index of the 500 largest
U.S. companies had a volatile 2011, lurching from a 14.3
percent plunge in the third quarter back up to 11.15 percent in
the fourth before ending the year with a 0.02
percent return. But emerging markets fared much worse, diving
22 percent. Whats more, dividends pushed the S&P 500
into positive territory: a 2.11 percent return.
Dividends play a big role in the U.S. equity story. A key
marker of corporate confidence because paring them back can
rock share prices, they rose $50.2 billion in 2011, almost
double their $26.5 billion climb for 2010, according to
S&P. For the full year S&P reported 1,953 dividend
increases, a 13 percent jump over 2010. Only 101 of the roughly
7,000 U.S. companies that divulge dividend information shrank
their payouts in 2011, compared with 145 the previous year.
Dividends had a great year in 2011, with actual cash
payments increasing over 16 percent and the forward indicated
dividend rate up 18 percent, says Howard Silverblatt,
senior index analyst at S&P.
U.S. corporate shares have been propping up global markets,
which fell 10.07 percent in 2011. Strip out the U.S. returns
43 percent of the total and the drop was 16.64
percent. When American equity markets broke even, investors in
them got a bonus, quips Silverblatt.
Reasons to be cheerful about the U.S. market abound,
managers affirm. Ive been saying for the past year
that U.S. equities are the most underowned asset, notes
Philip Tasho, CEO and CIO of $1.6 billion, Alexandria,
Virginiabased Tamro Capital Partners. Theyre
really a bargain at this point. And how do Americas
travails measure up to the European Unions sovereign debt
crisis and the inflation in places like Indonesia and Turkey?
Whatever problems we have, we solve them more quickly
than most countries, Tasho says.
Compared with Europe and elsewhere, the U.S. is relatively
calm, S&Ps Silverblatt agrees. People are
voting with their money, he adds, noting that a
slight reallocation to U.S. equity is under
Whether that will build to a groundswell is anyones
guess. Robert Parise, a Chicago-based senior adviser to
Midwestern public and corporate pension sponsors at J.P. Morgan
Asset Management, doesnt report a surge in U.S. stock
buying among his clientele. But pensions move more slowly than
endowments, concedes Parise, who has noticed that plan sponsors
are keener to drop underperforming U.S. equity managers. He
also sees movement from pure indexing to enhanced indexing or
outright active management.
For his part, GWUs Lindsey wont hold back on
U.S. equities. Our plan is to keep buying in, because
ultimately its setting up for a bull market, he