Why this money manager has the confidence to recommend investors ‘stay calm’

John Zechner.The Globe and Mail

John Zechner has seen his share of market downturns in his nearly 40 years managing money. It’s that experience that gives him the confidence to recommend investors “stay calm” during the latest market rout – and start buying if they have the stomach for more volatility.

“We’ve seen buying opportunities like this before, where stocks seem to discount the absolute worst-case scenario and, in the end, what we’ve ended up with are some pretty good buying opportunities,” says Mr. Zechner, chairman and lead equity manager at J. Zechner Associates, which oversees more than $1-billion in assets.

“It’s not like we don’t have some bad news in front of us,” adds Mr. Zechner, citing the trajectory of rising interest rates that threaten to push the U.S. and Canadian economies into a recession. Still, he says he believes the market has already priced in at least a moderate economic downturn and investors are pessimistic – a sentiment that has been associated with market bottoms in the past.

“We also don’t see the same type of excesses as in past economic downturns and therefore believe any recession will be short and shallow,” he says, adding that the job market is still strong, corporate balance sheets are in good shape and inventories of most major consumer goods are low by historical standards.

“Bottom line, the risk-reward trade-off in stocks has improved dramatically since the beginning of the year despite higher interest rates and increased economic risks.”

Investors in his firm’s Canadian balanced fund have been well positioned for the recent market swings. The fund, which includes about 50 per cent equities, 35 per cent bonds, 5 per cent preferred shares and 10 per cent cash, has seen total returns of 5.3 per cent over the past year, as of June 30, and an annualized return of 6 per cent over the past three years. The fund’s mix compares with an allocation of about 45 per cent equities, 35 per cent bonds, 5 per cent preferreds and 15…

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