Why Stocks Trump Fixed Income: Portfolio Manager

Howard Ward, portfolio manager of the Gamco Growth Fund, thinks anyone that owns more U.S. bonds than stocks right now is simply wrong.

“Stocks are demonstrably undervalued relative to fixed income,” he told CNBC on Wednesday.
“It’s a disparaity the likes of which we've never seen in this country.”

Ward’s comments come as stocks bounced back from Tuesday’s sharp decline.

“The 10-year Treasury is selling at 50 times its coupon,” said Ward. “There's no growth in the coupon.”

The 10-Year Treasury note is currently yielding 1.9 percent which, in Ward’s view, is next-to-nothing.

“With no growth in the coupon or principal, why would you want to buy that when you could buy — stocks, at 13 times earnings, that are going to have principal appreciation as well as a dividend at 2 percent,” he asked.

Certainly, not all public companies pay a dividend, but there are enough dividend-payers in the major indices to support his argument.

The S&P 500index is up 6.82 percent year to date. The Nasdaq Composite Index is also up year to date, by 11.71 percent.

“Equity risk premium (reward for buying stocks) has never been higher,” he said.

The contrarian view says that the market’s 2013 outlook for 7 percent growth in company earnings runs counter to Ward’s argument.

Ward simply disagrees: “Even with a muddied outlook for earnings stocks should do well. And individuals and institutions under-own stocks.”

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Howard Ward personally owns large-cap stocks. No specific stock picks were mentioned.