Sign up today and take advantage of member-only content — the kind of timely, cutting edge industry insight that only Money Management Executive can deliver.
  • Exclusive Online Only Content
  • Free Daily Email News Alerts
  • Asset Management Blogs

Up Front News

Merrill's Doll Tells Funds High Turnover Way to Go

NEW YORK - Fund executives and portfolio managers need to be more aggressive in 2003 if they want to make money, said Bob Doll, president and chief executive officer of Merrill Lynch Investment Managers (MLIM).

Companies need a proactive game plan to stanch the "massive outflows from equity funds into bond funds" and get a hold of the "ton of cash on the sidelines," Doll commented, when outlining his annual 10 market predictions for the year ahead.

Rent Don't Buy

With U.S. equities only returning 5% to 10%, smart fund portfolio managers should "rent" rather than buy and hold stocks, Doll continued. Acknowledging that the fund industry has been criticized for annual portfolio turnover rates of 100% or more, Doll attested that performance results achieved through "intelligent trading and tactical asset allocation" matter more to investors than high costs or fees associated with active trading.

Successful Mentality'

"A successful trading mentality rather than a buy-and-hold approach will be required to achieve double-digit returns" at a time when single-digit returns averaging 8% into the next decade will be the norm, Doll said. The markets will become a place where "winner takes all," he said.

Doll, who oversees $462 million in MLIM assets under management and also manages the Merrill Lynch Large Cap Series of three mutual funds, also advised fund managers: "Instead of becoming a victim of volatility, take advantage of it." In 2003, size and style will no longer be as important as sectors or even individual stocks, Doll said. In his own portfolios, Doll is overweight consumer discretionary spending and healthcare stocks.

Merrill Lynch's proprietary fund products now comprise 20% of the brokerage's mutual fund sales, Doll said, adding that the Large Cap Series should get added visibility this year now that they are celebrating their third anniversary and have track records that will gain them entry on various sales platforms. The Merrill Lynch Large Cap Core fund's three-year track record is negative 6.5% through Jan. 28, according to Morningstar, besting the S&P 500 by 6.53%.

Highlights of Doll's 10 predictions

for 2003 include:

* The stock market will return to positive territory for the first time in four years.

* Consumers will regain trust, after "reeling" from the corporate scandals and conflict with Iraq - the primary culprits that held the markets back in 2002.

* The U.S. economy and equity markets will outperform the rest of the world.

* Real U.S. economic growth will improve as concerns regarding a double-dip recession fade.

* The U.S. inflation rate will move up modestly as deflation concerns subside and the Fed begins to raise rates.

* Cost-cutting, productivity gains and modest revenue improvements will result in an upside surprise to earnings.

* U.S. equities will outperform cash and Treasury issues for the first time since 1999.

* 8/5/2: "Over the next five to 10 years, we will be in a 8/5/2 world - that is, one where we will have an average annual return of 8% for stocks, 5% for bonds and 2% for cash," Doll said. "If this forecast comes true, the stock market will not record new highs until the next decade."

Fast Lane

Doll concluded his predictions for 2003 by saying he hoped the year would be a "boring and predictable" one in which investor confidence is restored, "bringing the economy and the stock market back on track, if not into the fast lane."