Mulling Buffett's Stock Advice? Get in With REITs: Fund Managers
The choice is clear: stocks are a better investment than bonds right now, according to chief investment officers Bill Stone, of PNC wealth management, and Mike Finnegan of Principal Funds Group.
"If you look at the 'equity risk premium' — the difference between the market's expected return on stocks and bonds — it's about 6 percent. That's pretty rich. It's a positive signal for people to start entering the equity market," said Finnegan.
It turns out, Warren Buffettmade the same argument on Thursday.
"Right now you can buy the S&P 500 and earn roughly 2 percent on dividends, and historically capital gains have been good. So, if we hold steady and earn the dividends overtime, you're gonna feel pretty good in stocks," said Stone.
Say you take the bait and jump into equities — then what?
Finnegan thinks REIT (Real Estate Investment Trust) stocks are a good bet right now because more Americans are getting hired.
A REIT is a security that trades like a stock and invests in either properties or mortgages.
"We consider REITs to be fairly valued. Their biggest driver is employment growth. We have an overweight [portfolio distribution] in the U.S. REIT market," said Finnegan, of Principal's Global Diversified Income Fund.
In a separate interview Thursday, Finnegan shared his top picks with CNBC.
"I like Champion REIT because it pays a 7.2 percent dividend yield, whereas the average for global REITs is 5 percent." Champion REIT invests in office and retail properties in Hong Kong. US investors can buy Champion as an ADR ,
In the U.S., Finnegan is focussing on energy. "Plains All-American Pipeline is a major player in shale gas. It only has a dividend yield of 5 percent now, but the distribution forecast is for 8-9 percent," he said. The company has invested $5 billion in future projects to aid in the transportation, storage, and marketing of crude oil and natural gas.
DTE Energy is based in Detroit and supplies two-thirds of Michigan with electricity and natural gas. "If inflation goes up, they get to charge more. Regulators allow that for utilities," he added.
Natural gas, however, is what mainly interests Finnegan when it comes to U.S. energy stocks.
"The change is coming. We have it. It's cheap, and we will fuel our cars with it."
Additional News: Plains All American Bids on SemGroup
Additional Views: Cramer Goes Shopping For REITs
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Mike Finnegan does not personally own shares in DTE, PAA, or Champion. However, these securities are included in Principal Funds Group's portfolio.