Investors overreacted to the European debt problems and continue to let memories from the credit crisis exert too much emotional influence on their decisions, a panel of fund managers said Wednesday.
Problems in Greece and elsewhere, while significant, are unlikely to derail the nascent economic recovery, said speakers at a panel discussion organized by American Beacon Advisors, which runs a $45 billion family of funds.
The speakers agreed that this has become a stock-picker's market in which investors who keep their cool can find good opportunity as others are losing their heads.
"Human nature is to be impulsive," said Jim Miles, portfolio manager and principal at Hotchkis and Wiley Capital Management. "The first reaction you have is usually the wrong reaction."
The market made a mistake when it sold off on the heels of the European debt crisis, but even in doing so created value in stocks after the market shed more than 13 percent from its most recent highs.
That meant a new window of opportunity from a market that previously had soared about 80 percent off its March 2009 lows.
"Easy money is clearly off the table," said Cliff Smith, senior managing director at The Boston Company Asset Management. "When you get in this place in the market you have to be opportunistic. This has become a stock-picker's market for sure."
Many of those opportunities discussed lie in large-cap US stocks in industries such as health care, industrials and information technology, the managers said.
Selected European investments, though, should still be on the table, with the focus on nations such as Poland that are still strong and have watched their currencies get dragged down as ancillary effects from the crisis.
Investors should be wary of the "artificial impact of dragging down stronger economies," said Paul Psaila, managing director at Morgan Stanley Investment Management.
"One of the big mistakes investors make is the contagion effect like from the Greek financial crisis," Psaila said. "It's unlikely that anyone is giving up on the euro anytime soon."
Many of the world's economies have heavy debt loadsand only four are running budget surpluses, said Michael Bennett, managing director and portfolio manager at Lazard Asset Management.
"Clearly (the European debt problem) is a factor that is going to have a negative impact on earnings. I think that was priced in," said Mark Giambrone, principal at Barrow, Hanley, Mewhinney & Strauss. "At this point I would categorize (investor behavior) as an overreaction."
Mega-cap US companies such as International Business Machine continue to do large portions of their business abroad, something investors should remember when making snap decisions based on negative headlines, Giambrone added.
"Unfortunately for the retail investors, they're always looking in the rear-view mirror when making their investments," he said.
"In October of 2007 people were too optimistic and in March of '09 they were too pessimistic," Bennett added.
Investors looking for global opportunities should turn their attention to real estate as well, said Steve Carroll managing director at CB Richard Ellis Global Real Estate Securities.
Carroll predicted a shake-out in the industry in which well-capitalized real estate investment trusts (REITs) would be able to snap up properties from landlords who can't compete.
Debt from global REITs is coming due in the coming near term, opening the door both for defaults and chances for companies with greater access to capital. Global REITs raised $70.1 billion in capital in 2009 and 2010, positioning the industry for growth.
"More and more properties are going to come onto the market," Carroll said. "This will take years to play out. REITs will be the beneficiaries of this process."