American Beacon President and CEO Gene Needles, led the forum with a humorous touch and a quick pace, which prevented the investment managers from lapsing into too much data-driven chatter.
Needles introduced the opening speaker, Dr. Zhiwu Chen, a professor of finance at the Yale School of Management. Needles joked that if those credentials weren't impressive enough, Chen proved it during rehearsal, saying, "He was the only one who could figure out the laser pointer."
Chen, a founding partner of Zebra Capital Management along with Roger Ibbotson, spoke about Zebra's two funds unveiled June 1and its liquidity-based investment philosophy, which he insisted was "not a repackaged version of value investing."
Chen said many fund managers had a missing element in their strategies compared to Zebra's large cap and small cap equity funds.
"If you look at the basic two-dimensional graph taught at MBA programs that measured return versus risk," Chen said, while deftly focusing the laser pointer at the screen, "the missing dimension was liquidity."
Chen said private equity was very illiquid, and "If the economic crisis taught us anything, illiquid instruments are not what you want."
However, the Zebra mutual funds, launched through American Beacon earlier this month based on the Chen-Ibbotson research, use relative liquidity to capture the premium of slightly-less liquid stocks in a portfolio.
On the real estate side, Steve Carroll, managing director of CB Richard Ellis Global Real Estate Securities, said it was time to buy global commercial real estate because a recovery had already begun, and REITs were a "great way to play that recovery."
Carroll said the leading indicator of that trend was New York's commercial market, which was in the midst of a rebound. REITs lead the private market by 12-18 months and have access to capital that other players don't so "REITs will be a beneficiary of that [recovery] process."
The panel discussion that Needles led featured six sub-advisors, which was imbalanced in its lineup of one growth and five value managers but unified as Mark Giambrone, principal at Barrow Hanley Mewhinney & Strauss and representing the value side, said, "None of us buy overvalued stocks."
The panelists, probably because of limited time, didn't drill down into investment minutiae, but stuck to general themes and philosophies of investing, which made for a relaxed cocktail-hour discussion despite it being early in the day.
James Miles, portfolio manager and principal at Hotchkis and Wiley Capital Management, gave a clear explanation of the philosophy that guides value-side managers, saying picking stocks just because they're cheap is not the best way to find true value.
"Some managers shop for items in the front of the store that are inexpensive but don't have much value," Miles said. "A value manager shops at the back of the store and looks for that discounted blue suit that you can wear every day."
Needles asked the panel what mistakes the average investor made over the past two years. The panelists agreed that the number one mistake was "overreaction." And it was the advisors' job, the panelists agreed, be they in the growth camp or value camp, to not overreact with them.
Read a story about AMR's sale of American Beacon from the archives of InvestmentAdvisor.com.