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December 2, 2011

CNBC: Gary Flam Quoted in “Market Pros Had Bad Year, So Why Not Just Buy Index Fund?”

“Market Pros Had Bad Year, So Why Not Just Buy Index Fund?,” by Jeff Cox, CNBC.

“The question has to be, over a long-term cycle, has the strategy provided value,” says Gary Flam, portfolio manager at Bel Air Investment Advisors in Los Angeles. “You can’t drive looking in the rearview mirror. From an investor aspect, what do I expect the next couple of years to hold, and given that outlook, how do I expect to outperform?”

The teetering economy has brought a new investing dynamic to the market, Flam says.Whereas a few years ago the primary criteria was finding companies that had strong balance sheets, the focus has turned to those with stronger earnings growth potential. Many managers have been slow to adapt.

Banks, then, became less attractive despite having more than $1.5 trillion rolling around their balance sheets, while consumer staples, energy, industrials and health care became more attractive.

“Understand that six months ago everybody thought the economy was growing and we were on this sustainable path. You wanted companies that were exposed to continued economic growth,” Flam says. “The last four months have laid bare that if you’re positioned in companies with exposure to continued economic growth and that economic growth is put into question, your portfolio is going to suffer.”

Like Lamkin, Flam expects that his clients will see the long-term value in their investment strategies and stay the course with active management.

However, should 2012 bring another rough year, that could become a tougher sell.

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