Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!news.media.mit.edu!americast.com!americast.com!usa-post Newsgroups: usa-today.bonus From: usa-post@AmeriCast.Com Organization: American Cybercasting Approved: usa-post@AmeriCast.com Subject: bonus Mon, Jul 27 1992 Date: Mon, 27 Jul 92 04:22:00 EDT Message-ID: 07-27 0000 BONUS: Money-manager-investment-trends USA TODAY Update July 27, 1992 Source: USA TODAY:Gannett National Information Network The more things stay the same, the more they change. That twist on the old saw has become the lesson of the 1990s for professional money managers. Three years ago, both the trends of the '90s and the resulting investment opportunities seemed clear to professional investors. Here in the USA, the hot issues were health care, the environment and aging highways, bridges and other infrastructure. Abroad, the opening of Eastern Europe was expected to fatten investment profits through the '90s. HAVE THE TRENDS CHANGED? This month marks the end of the first quarter of the decade. The trends have come true, but one look at the investments confirms there is never a sure thing in the stock market. To be fair, as the 1980s ended, investing pros were looking at the '90s from tumultuous times. The Berlin Wall had just come down. The U.S. economy was beginning to slide toward recession. Who could foresee events such as the Gulf war and end of the Soviet Union? There is no shortage of excuses why money managers still aren't seeing profits they expected by investing early in the trends of the '90s. CAN MONEY MANAGERS BE TRUSTED? Even when professional investors are correct when predicting trends, "they don't necessarily turn out to be the best investments," says Steve Leuthold of Leuthold Group. Leuthold is among thousands of money managers who still believe the major trends of the '90s will turn certain stock groups into big winners. But many money managers have lost patience and aren't willing to buy stocks based on guesses about what trends will be important through the decade. WHO DO MONEY MANAGERS REACH? What money managers think and do has an effect on millions of people who are saving for retirement, making sure their kids have college money or simply hoarding a financial war chest. Money managers run mutual funds. They manage corporate and government pension funds. They invest for bank trust departments and insurance firms. They run firms that cater to individuals. WHAT PROBLEMS AROSE FOR MONEY MANAGERS? Those money managers are under pressure to reap both short-term and long-term investment gains. When many of the trends spotted 2 1:2 years ago turned out to be flops as investments, money managers were in trouble with clients. The problem is that while spotting big social and political trends is not hard, knowing enough about the intricacies of those trends and how they interact is crucial to making the right investment decisions. WHAT WERE GOOD INVESTMENTS? Health-care stocks seemed a safe bet. The U.S. population was aging and would need more drugs and operations. But few foresaw how out-of-control health-care inflation would lead to pressure being put on the industry by government, insurance companies and consumers. Health-care stocks were hot investments for the first two years of the decade. But the first six months this year, drug stocks in the Standard & Poor's 500 index fell an average 16%, and diversified health-care companies dropped 20%. WHAT ELSE WAS SUPPOSED TO AFFECT INVESTING? Another big trend, the collapse of communism in Eastern Europe, was supposed to pave the way for one of the biggest investment opportunities in history, but that hasn't happened. The potential is certainly there: Eastern Europe's decaying roads, obsolete factories and outdated communications systems desperately need replacement. WHY WASN'T EASTERN EUROPE A GOOD CHOICE? Trend-spotters didn't realize how bad the situation in Eastern Europe really was: Countries like Yugoslavia and Czechoslovakia have deep political problems, and the infrastructure in nearly all East bloc countries is far worse than most experts anticipated. Eastern Europe may well be a great investment opportunity - but the rewards may still be several years off. ARE THERE NEW TRENDS? Now that they're well into the decade, many money managers are more confident they know which trends will be good investments through the year 2000. Some are trends that few spotted 2 1:2 years ago. Others are trends everyone knew about before but are just now beginning to look like solid investments: WILL HEALTH CARE REDEEM ITSELF? At the start of the decade, experts thought any health-care stock would shine in the '90s. Now the outlook has changed. "Medical costs will be a constant and accelerating issue on the minds of Americans," says Michael Arends, co-manager of the Kemper Growth Fund. "Companies that can contain medical costs will be big beneficiaries." He says that will be especially true if Bill Clinton is elected. He says areas with strong potential include health-maintenance organizations, mail-order prescription firms and companies that look for waste in employee health claims. IS WASTE MANAGEMENT A GOOD CHOICE? Pollution remains a sore in many areas. But money managers who invested 2 1:2 years ago in stocks of waste cleanup companies have been disappointed. Waste-related businesses were considered impervious to the ups and downs of other industries. "People had looked at them as growth stocks that grow in any type of economy," says Gerald Perritt of Perritt Capital. "It turns out they have cycles, too." When the economic cycle moved to recession, companies found a way to cut back on environmental spending. Now things are looking better for waste company stocks. Big firms such as Browning-Ferris and Waste Management should benefit as landfills that aren't up to government standards are closed by 1993. As the economy improves, companies should begin to spend more on environmental problems. WHERE WILL EDUCATION FIT IN? The USA is not as competitive worldwide as it used to be. Many blame a weak educational system. "The government is realizing public education in this country is abysmal," says John Rogers, president of Calvert Ariel Growth Fund. "That's where a lot of scarce resources are going to be allocated." That could benefit educational software companies, educational toy makers and textbook publishers. WHAT OTHER EARLIER TRENDS WILL TURN AROUND? Fixing the infrastructure. Crumbling roads and bridges, aging factories and other declines in U.S. infrastructure can't be ignored. But some fear a lack of government funding will slow business. Susan Byrne, president of Westwood Management, doesn't see that as a problem. She argues that private companies soon will be spending more on their infrastructure - factories and heavy equipment - even if government spending on roads and bridges is slow. "This is a tremendous opportunity," she says. Rising savings and falling interest rates will provide low-cost capital for companies to build plants and buy equipment and improve their position in the global marketplace. Bonus Editor: Kate Coughlin. (1-919-855-3491) Making copies of USA TODAY Update (Copyright, 1992) for further distribution violates federal law. This article is copyright 1992 Gannett News Service. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. 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