The Macro Debate

Macroeconomic factors have been a driving force behind stock market moves in the past couple years. But how much should the recent increase in the impact of macro factors on the market affect stock investors’ strategies?

Some of the world’s top managers are expressing different opinions, according to a Bloomberg article. Chuck Akre, for example, is holding more cash than he previously had because of the financial crisis. “It’s not clear how our economic and political situation will unfold so you have to bear more things in mind today,” Akre tells Bloomberg. “We need to do a better job of integrating our world view than we have in the past. … We want to be better prepared for the world we are in today.” Akre, who has an exceptional long-term fund management track record, was holding just over 20% of his fund in cash as of July 31, according to a recent regulatory filing.

Oakmark’s David Herro, one of Morningstar’s fund managers of the decade, isn’t as swayed, however. He tells Bloomberg that focusing too much on economic forecasts can cause investors to miss out.

Herro focuses on long-term forecasts of companies’ cash flows, which he says aren’t affected much by economic swings. He says he doesn’t ignore macroeconomic developments, but sees them as “not so important”. Bloomberg says Herro hasn’t changed his method of valuing stocks since the 1980s.

Other top strategists also weigh in on the issue, including FPA’s Robert Rodriguez. He started out purely as an individual stock-picker, but his approach has morphed to also focus on macro factors. “Not paying attention to the macro side could be hazardous to your health,” Rodriguez told Bloomberg.

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