Oppenheimer Manager Favors Bonds, Growth Stocks Moscow Native John Wallace Expects Stock Market To Remain Erratic, But Head Higher

John Wallace is something of a weight lifter.

But the Moscow native doesn’t pump iron, his burdens are $2 billion portfolios of stocks and bonds that he tosses daily in his role as portfolio manager for Oppenheimer Funds.

Under his control, assets in the Total Return Fund and Main Street Income & Growth Fund have swelled, multiplying more than 10 times in just two years in the case of the Main Street fund.

Main Street was ranked No. 1 among growth and income funds over the last three- and five-year periods by Lipper Analytical Services.

The same fund was in the top 1 percent of all funds for the same periods.

Although less highly rated, the Total Return Fund has produced returns averaging more than 14 percent over the last 10 years.

Wallace, who was in Spokane a week ago for a family visit, noted that last year was a down year for both funds.

But Main Street is up 8 percent so far this year, Total Return 7 percent, largely on an unusually strong move into bonds last November, just as they hit bottom.

“We’ve done quite well in this rally,” Wallace said.

Bonds and other high-yielding securities comprise one end of what Wallace likes to call his portfolio “barbell.”

At the other end are growth stocks, with a bias toward mid- and small-sized companies.

Typically, he said, stocks constitute about 75 percent of the holdings in both funds, while bonds, utility stocks and convertible bonds make up the other 25 percent.

Wallace said he looks for stocks that will double in two or three years, with an eye toward factors like new management, products or markets that will trigger a surge in company performance.

If a stock’s price drops 15 percent, he said he will sell some shares and reassess his reasons for taking a position in the company.

He’ll stick with the stock if the slump is just a reflection of market volatility, but sell if the fundamentals have changed.

The worst thing an investor can do is rationalize a loss, he said, adding “There’s got to be a reason for owning a stock.”

Wallace predicted the stock market would continue to move erratically but generally upward, with any correction less than 5 percent.

Domestic markets will outperform international exchanges for another six months, he said.

His Oppenheimer funds, once 10 percent invested in foreign markets, have trimmed that exposure to less than 5 percent, he noted.

Wallace said technology, telecommunications, and major drug companies will be the market leaders in the months ahead.

Utilities, whose shares took substantial losses last year, will steady, Wallace said, but new competition will make it harder for electric companies to make the dividend increases that have lifted their stocks in the past.

He said he prefers natural gas and “new age” utilities that yield 5 percent and have some growth potential.