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<br> The Chameleon

Shot by Matt Furman

NEW YORK | A former strategist with Merrill Lynch who now leads his own buy-side boutique, Richard Bernstein Advisors, Bernstein zigs when others zag. That approach made him skeptical of the tech bubble in the 1990s, enthusiastic about commodities when the bubble burst and, more recently, keen on U.S. stocks despite worries about the aging bull market. His Equity Strategy Fund, a mutual fund available to U.S. investors, beat the benchmark MSCI All Country World Index by two points in 2016, and has outperformed it over the past five years.

Describe your style.

Very flexible. A lot of managers can only invest within their defined geographic or size or style bucket. We jump around looking for the best opportunities. Styles, as well: Sometimes we look value-oriented or growth-oriented, sometimes cyclical or defensive. Our funds look like chameleons: They change their colours depending on the environment.

Is there an investor you particularly admire?

I'm going to say Warren Buffett. He is an individual stock-picker, but has very high-concentration bets. So he takes a lot of risk. We take macro risks. And if you are not making bets, how in the world would you outperform?

Where do you see the best macro opportunities?

We are very overweight global energy and material stocks. A year ago, West Texas Intermediate (WTI) troughed at $26 (U.S.) a barrel. As we roll into 2017, I don't know what WTI is going to be, but I feel confident in saying it will not be below $26. The stocks are going to work okay if oil is $40. If oil is $70, they will work tremendously. Either way, earnings growth is going to go up.

What keeps you up at night?

That the central banks, particularly the Federal Reserve, tighten too much. GDP growth is reasonably healthy, and the profits picture is recovering. The Fed tightening too rapidly or aggressively could ruin that. One of the ways we're trying to judge it is with the slope of the yield curve. If the Fed were to invert the yield curve, all bets are off.

What's been your best move?

Four years ago, we took significant positions in junk municipal bonds. They had yields that were 200 basis points over not Treasuries, but Iraq bonds. The entire asset class was viewed as considerably riskier than Iraq. That's crazy. I think we got total returns well over 20% for a couple of years.

What's your current favourite holding?

We don't have a favourite holding, but our favourite theme is reflation. Much of our portfolio positioning is geared to global reflation.

Are there areas of the market you are avoiding?

Japan. We're not convinced that the government has a policy to weaken the yen—but if they do, and we see this filter into corporate profits, of course we'd be there in a second.

Do you have a favourite investing book?

My own: Navigate the Noise: Investing in the New Age of Media and Hype. It was written 15 years ago, but is oddly more appropriate today.