In order to guide the future of the stock market and the economy, experts from Osterweis Capital Management, such as Karl Kaufman and Niall Farhi, analyze financial data with the precision of accountants and focus on debt and dividends.
According to Morningstar Direct, their Osterweis Strategy Income Fund (OSTIX) and Osterweis Growth & Income Fund (OSTVX) have significantly outperformed their peers and benchmarks in recent years.
Here are six important insights and predictions from Kaufman and Farhi on the current US market environment:
1. A recession will not occur immediately: Despite predictions made by analysts such as Jeffrey Gundlach, Kaufman and Farhi do not foresee an immediate recession in the US. They attribute this to the trend of government measures supporting growth in an election year and point out that the current market conditions, such as the small spread between high-yield corporate debt and government debt, do not indicate an economic recession.
“Our primary scenario is economic slowdown, not a recession,” claims Kaufman.
2. Building cash reserves: Considering that market conditions may lead to future downturns, Kaufman’s funds maintain high levels of cash.
3. We are in the final three innings of the high-yield rebound: Kaufman warns that it is prudent to prepare for a market downturn, considering the currently low yields on high-risk debt.
Read more:
How will Donald Trump’s victory affect the US market?
4. Focus on lower-quality bonds for better returns: Kaufman finds opportunities in bonds rated “BB” or “B” that offer higher yields than similarly or better-rated bonds. His funds hold debt from companies like KeHE Distributors and Banijay Group, which have solid financial conditions and growth potential.
5. Invest in companies that reinvest in free cash flow: Kaufman and Farhi prefer to reinvest returns in growing companies rather than excessive stock buybacks or dividends. For example, they favor Airbus because, compared to competitors like Boeing, Airbus has made long-term investments in fuel efficiency technology.
