Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

Michael Aronstein: Don't fight 'wrong' Fed policies


The Federal Reserve may be wrong to keep turbo-charging the economy with easy money, but one big mutual fund manager thinks investors shouldn't try to fight it.

Michael Aronstein, who manages a top absolute return mutual fund—one that acts like a hedge fund by betting both for and against securities—delivered the message at the Morningstar Investment Conference in Chicago.

Michael Aronstein
Jin Lee | Bloomberg | Getty Images

"We still believe that the economy as we sit here is getting a lot better than is being directed by the central banks with the general population of people allocating assets.That's much better news on the equity side than it is for other assets," Aronstein said Friday. He manages the $20.8 billion MainStay Marketfield Fund.

Aronstein said he's added to his fund's stock exposure over the last two months.

"Right now we have to think the economy is accelerating, the risks of inflation are increasing, that we'll probably get nominal growth in the next 12 months around 6 percent or maybe higher even," he added.

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Aronstein's extra allocation to stocks belies his frustration with government monetary policy.

"The Fed has basically said, 'Steady as she goes' with the most radical expansive monetary experiment in the history of central banking. Once again, our premise is that the Fed is wrong, that they could be a couple of years too late to making the decision" to curb stimulus, Aronstein said. "When they were too tight for all of 2006, 2007 and 2008, the nature was an inflationary credit event. Now that they are too loose for five years, the nature is too much strength and too much price distortion for the economy."

The MainStay Marketfield Fund—which has the ability to invest in stocks, bonds, commodities and other asset classes based on broad macroeconomic views—has performed poorly this year. The New York Life-owned vehicle is down 3.03 percent for 2014 through June 19, the first time it has fallen in a calendar year since 2008.

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Aronstein acknowledged his fund's struggles this year.

"For whatever reason the first quarter of this year … had pretty weak economic statistics coming out of the United States," Aronstein said. "Because the market was set up with a lot of expectations of strength—including our own portfolio and I think including a lot of macro managers—the reversion during the first quarter was pretty violent."

The fund's top holdings among 135 securities as of March 31 were Bank of Ireland, Alcoa, Facebook, Fiat Industrial, Unicredit, Continental AG, iShares MSCI Mexico Investable Market Index Fund, BHP Billiton and BASF SE.

All of those bets have gained this year with the exception of Bank of Ireland and the Mexico index.

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—By CNBC's Lawrence Delevingne