Interview: Hayden Financial Group---Hayden, Vern---President
>> stocks rose on optimism the fed may soon end its string of interest-rate increases. our next guest says for 2006, he’s looking for solid corporate earnings. vern hayden is the president of hayden financial, and he joins us now with his market outlook and top mutual fund picks. thanks for coming today.
>> thanks for having me.
>> i would like to get your thoughts on the fed news increase by a quarter percent but the big news they’re dropping the accommodative phrase, most believe the end of increases not too far off. do you agree?
>> i think there will be at least one or two more and then, i think, they’re going to have to stop because inflation is going to rear its ugly head sometime probably before the end of next―probably toward the end of next year and i think the fed wants that because of the twin deficits going on and whatever.
>> bonds should be used as a defensive play. we saw a bullish reaction in bonds. does that change your strategy at all?
>> no, i still think that bonds are a very good defensive strategy. they did fabulous in the last bear market and i think that would be true if we had another bear market sometime.
>> how far out on maturity do you believe would be risky in terms of bond?
>> i wouldn’t go over three or four years.
>> your bond fund recommendation is the harbor bond fund managed by bill gross who we just had on the show. what makes that special?
>> it’s special that bill gross manages that and most people don’t realize that, and he is about four years’ maturity, and when interest rates do go against that he adjusts pretty quickly to the environment, so i think it’s one of the best managed funds there is. >> and you certainly recommend it.
>> you bet.
>> you mentioned where you expect the market to go through 2006. do you think it will be a great year or just an average year in terms of returns? you mentioned a concern of inflation coming back into the picture.
>> i think the glass is definitely half full but not full.
>> ok.
>> i would expect the market to give us at least a 6-8% return next year, which doesn’t sound wild but in lieu of a lot―in view of a lot of things that have gone on that’s probably going to be ok.
>> commodities, precious-base metals, red hot. do you still see commodities as a long-term play?
>> the emphasis is long-term. you get. i think we’re in a bull market long-term at least for the next 5-8 years in commodities, so i think people should pick a really good commodities fund, stay with it. don’t get scared if it goes down because it’s going to be a very volatile experience.
>> how to you pick a good commodities fund? a lot of people don’t know particulars of the industry.
>> go to morningstar. there are two big public commodities fund, the oppenheimer real asset and the pimco commodities fund. i prefer that one because it’s 32% in actual gas and oil and the other one is 60% which is more an actual gas and oil play but i like the balance.
>> how much would you allocate?
>> 5-10%.
>> what is your total asset allocation?
>> i use hybrid funds for a great degree for 50% of a portfolio―by hybrid funds a manager that can invest across all the asset classes including real estate, including international. that way we’ve got a player that can make the decisions themselves for the client and for the portfolio. i like that approach because it makes the portfolio a little less risky and yet you don’t sacrifice a lot of return.
>> in terms of international plays you told us earlier you’ve got 49% allocated overseas including 10% in asia. that is significant.
>> it really is. i like the matthews asia-pacific fund. i like the asia groth and -- growth and income fund. unfortunately it’s closed. it will be volatile too. i tie that into another fund, keep in mind these shouldn’t be more than 3-5% of a portfolio. the u.s. global eastern european fund, here is where we’re investing in czechoslovakia and those european countries that are coming on strong, a lot of growth but can be volatile.
>> what funds or groups of funds might you suggest investors steer clear of? what type of fund?
>> i think they’ve got to be real careful about chasing sectors. i don’t know that i would suggest anybody go into an energy fund at the moment. they need something that’s much broader than that because energy may have topped out for a while. we don’t know. it’s probably an excellent long-term play. i would be very careful about a gold fund because gold is topping pretty good. it may go a lot further. the way it’s gone up makes me kind of think that a year from now inflation will be on the rise because generally that’s an indicator, but i would be careful about just chasing those sectors.
>> you mentioned energy. you have on your mutual fund pickslet c.g.n. focus fund up 26% year to date. do you keep that as a pick?
>> you have to keep in mind what the manager does. ken hebner, who manages that fund about a year and a half ago was in home builders and all that, then he gravitated to energy. he’s a guy that has been very successful at picking various sectors to be in. and he places larger bets. he only has 17 stocks in his fund. it’s a bit of a risky play, so i wouldn’t go crazy with this fund. i wouldn’t put more than about 10% in it but i think it has a place in most mofrle portfolios.
>> we’re think running out of time. your picks is pearl total return fund and the exelsior fund. one quick comment.
>> perl i like because it has 15 other funds and 11 of those other funds are closed. people can’t get into them. i would take a look at that. exelsior is a good fund. it looks at restructuring in companies.
>> you got it in there.
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Listen Market briefing --- Lori (slow)
Enron --- June (slow)
Merge in oil companies --- Dan (slow)
>> welcome back to “ after the bell.” lori rothman recapping the day on wall street, a trading day some say didn’t even get started until 2:15 eastern time when the fed, of course, made its decision to increase interest rates by a quarter percentage point and they also dropped the phrase accommodative. on that news, the dow rose 55 points to 10,823. the s&p closed an even seven points higher, 12 67 and the -- 1267. the third consecutive session of gains on the nasdaq composite. enron declared the second largest bankruptcy in history. former chairman ken lay faces trial in houston next month for fraud charges for his role in the scandal. today he made a business speech outlining his version of the story and bloomberg’s june grasso was on hand for the speech. she joins us now in houston. june.
>> ken lay proclaimed his innocence before more than 200 houston businessmen and women. he called his speech “guilty until proven innocent.” he said technical accounting details made up most of the charges against him and that he was arrested and charged because prosecutors specifically targeted him instead of investigating whether a crime had been committed and who committed it.
>> if asked, i am certain that the enron task force would say they have taken so much time because the crimes at enron are so complicated. however, i would say that the enron task force has taken so much time because it is complicated to find crimes where they do not exist.
>> in the past, lay has blamed unscrupulous employees for the do you feel of enron, particularly andrew fastow, who was the former c.f.o. who has pleaded guilty in return for becoming the state’s star witness and 10 years in prison. today, of course, he did still call fastow a crook, but he also said there were other things that led to enron’s collapse. the bursting of the stock market bubble. california’s energy crisis. india’s refusal to honor its contracts with enron, among others. and he said what triggered the collapse in particular was a loss of confidence by the financial community.
>> it was the stench of possible misconduct by fastow, the notion that enron’s c.f.o. might be involved in shady and even illegal activities that provoked the loss of confidence causing the run on the company’s treasury.
>> now, he also expressed certain concerns about his inability to get a fair trial because there are about 100 unindicted coconspirators who have been unwilling to speak to defense lawyers, and this is a matter of record because it has come before the judge in motions, and lay’s attorney, michael ramsey, also spoke about that after lay’s speech.
>> you won’t get hurt if you come tell the truth. and we are in the business of trying to get the truth told in a courtroom, and we have to have witnesses to do that.
>> and ramsey said that their backs were up against the wall on this with the lack of witnesses though some witnesses are coming forward. lay said he is going to testify at his trial. this comes as no surprise, because he has been speaking out about the case. it has been his strategy since the day he was indicted when he called a press conference. if he comes across on the stand as he came across today, affable, answering questions afterwards, it seems like he will be a good witness in his own defense. back to you.
>> ok, june, thank you. now that conoco phillips is buying burlington resources, analysts say that’s cranking up the pressure on rivals to do their own deals. it’s a story bloomberg news reporter dan lonkovitz joins us on set. this changes the way the oil deals are being done. any hints you are seeing that more deals are definitely coming?
>> i’ve talked to a lot of investors and analysts and bankers today, who all think that more deals of coming. we’ve seen a real―there’s been a change in the way that oil and gas are priced, you know, increased demand from china and india have permanently changed the situation there. gold medal today was predicting that―goldman today was predicting that oil was reach $105 a barrel until 2009, so clearly high prices are here to stay and companies are starting to realize that they can lock in good prices on assets that are going to be worth more down the road. so conoco phillips is betting on gas. they’re buying burlington resources. they think that gas prices today are going higher and they think this is a good asset to get now. there are lots of other companies out there similar to burlington in that they’re largely gas focused, but analysts tell me that they are not―they’re priced a little bit higher. the price differential is a little bit higher. so it made the burlington resources deal the best one to do and the first one to do, but we can see there are lots of other companies that have been up today on speculation of possible deals including x.t.o., e.o.g., i think even devon energy has been up, anadarko, a lot of these companies are going to get a bump because of the takeover rumors and we’re probably going to see an active year in 2006.
>> so some peer pressure going on in the industry, but not every major oil company is going to be a buyer, right?
>> clearly not. i think one of the interesting things about the conoco-phillips-burlington deal is that it rebalances the company, makes it more 50-50 domestic-international. a lot of the big super-majors, exxons of the world are 2-1 or 4-1 international to domestic, and conoco has made a decision that, you know, the oil sand and the gas sand in north america are really great places to find reserves, and you could see some pressure on companies like chevron or even shell, who want to―who think they need to be in north america too, and that’s an area where we’re going to be looking at.
>> appreciate your insight, dan. thanks a lot for coming in today, dan longkevich, bloomberg news reporter.
