After a review of January market returns, co-hosts Jeffrey Sherman and Samuel Lau are joined by fellow DoubleLine portfolio manager Jeff Mayberry to discuss their outlooks for securities and ideas on asset allocation for 2022. Mr. Mayberry foresees a relatively benign economic backdrop (7:35) this the year, with positive GDP growth, particularly in the second half of 2022, and inflation likely to moderate to 3%. However, he adds, if inflation persists above 5%, the Federal Reserve would have to tighten more aggressively. Mr. Lau (17:31) observes that “inflation has been high enough, persistent enough (that) it’s made its way to wages, which are sticky. Ultimately, they’re probably going to make their way up the employment chain.” Mr. Sherman sees politics at work behind the Fed’s turn from dovish to hawkish monetary policy. “The Fed,” Mr. Sherman says, “cares more about inflation, not because of the Fed’s mandate, but because politically, that’s what the (White House) administration cares about.”
In terms of asset allocation, given a Fed so far bent on tightening and markets pricing in tighter financial conditions, Mr. Lau recommends (28:30) fixed income investors focus on quality, paring back on high yield corporate bonds in favor of investment grade corporates with strong fundamentals and less reliance on debt. He also likes floating-rate assets like collateralized loan obligations and non-Agency residential mortgage-backed securities. For an investor’s corporate exposure, Mr. Sherman likes a mix of 60% IG and 20-30% bank loans given their floating rate coupon and the rest in selective high yield names. Turning to equities (38:36), Mr. Lau expects U.S. equities to produce positive returns, but he notes that European stocks are starting to play catch-up. Mr. Lau says emerging markets equities could become a “top-performing region in 2022,” although he advises investors to practice patience, giving time for uncertainty over the macroeconomic environment and interest rates to moderate. Mr. Mayberry says (39:59) U.S. stocks, especially large-cap growth stocks, are expensive based on CAPE ratios versus European stocks. “It may be time,” he says, “to peel back a little U.S. exposure and move into Europe.” Mr. Sherman advises equity investors, especially those with heavy exposure to U.S. stocks, to “watch real yields. Real yields are what drive multiples, not nominal yields. And that’s what you’ve seen transpire. This has been a big real yield move,” which has compressed valuation multiples. This episode of The Sherman Show was recorded Feb. 2, 2022.
As DoubleLine’s Deputy Chief Investment Officer, Jeffrey Sherman oversees and administers DoubleLine’s Investment Management sub-committee coordinating and implementing policies and processes across the investment teams. He also serves as lead portfolio manager for multi-sector and derivative-based strategies. Mr. Sherman is a member of DoubleLine’s Executive Management and Fixed Income Asset Allocation Committees. He can be heard regularly on his podcast “The Sherman Show” (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) where he interviews distinguished guests, giving listeners insight into DoubleLine’s current views. In 2018, Money Management Executive named Jeffrey Sherman as one of “10 Fund Managers to Watch” in its yearly special report. Prior to joining DoubleLine in 2009, Mr. Sherman was a Senior Vice President at TCW where he worked as a portfolio manager and quantitative analyst focused on fixed income and real-asset portfolios. He was a statistics and mathematics instructor at both the University of the Pacific and Florida State University. Mr. Sherman taught Quantitative Methods for Level I candidates in the CFA LA/USC Review Program for many years. He holds a B.S. in Applied Mathematics from the University of the Pacific and an M.S. in Financial Engineering from the Claremont Graduate University. Mr. Sherman is a CFA® charterholder.
Mr. Lau joined DoubleLine in 2009. He is a Strategist on the Fixed Income Asset Allocation (FIAA) Committee and a contributing member on the Global Asset Allocation and Macro committees. Mr. Lau is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives-based and multi-asset strategies, including DoubleLine's Shiller Enhanced CAPE®, Shiller Enhanced International CAPE®, Real Estate and Income, and Multi-Asset Trend strategies. He also co-hosts the Sherman Show (Twitter @ShermanShowPod, ShermanShow@Doubleline.com) and Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcasts. Prior to DoubleLine, Mr. Lau was a Vice President at TCW where he worked under Jeffrey Gundlach as a Research Analyst in the Mortgage Group. He holds a B.S. from the University of Wisconsin, Madison and an MBA from the Marshall School of Business at the University of Southern California.
Mr. Mayberry joined DoubleLine in 2009. He is a Portfolio Manager on DoubleLine’s strategic commodity strategy while working in portfolio management and trading for derivatives‐based and multi‐asset strategies. Mr. Mayberry is a Strategist on the Fixed Income Asset Allocation (FIAA) committee and a contributing member on our Global Asset Allocation and Macro committees. He also co-hosts DoubleLine’s weekly Monday Morning Minutes (Twitter @DLineMinutes, Minutes@Doubleline.com) podcast. Prior to DoubleLine, Mr. Mayberry was a Senior Vice President at TCW for nine years within the Mortgage Group, where he specialized in portfolio and fund monitoring and analytics. He holds a B.S. in Engineering from Harvey Mudd College and an M.S. in Financial Engineering from the Peter F. Drucker Graduate School of Management at Claremont Graduate University.