How You Can Profit From Market Volatility

Leading money managers share the best strategies for building your portfolio

Eugene A. Profit, CEO of Profit Investment Management L.L.C. (No. 15 on the BE Asset Managers  list with $2.07 billion in assets under management) adds it’s extremely important to understand long-term investment objectives—whether you are trying to build a nest egg or finance junior’s college education.

Stick with market leaders. Young recommends quality stocks with proven earnings track records and strong cash positions. Specifically, he recommends market leaders such as Apple Inc. (AAPL), McDonalds Corp. (MCD), FedEx Corp. (FDX), and PepsiCo Inc. (PEP). His reason: All have strong brands, solid products, and product development with consistent earnings. “These are the factors that should be considered when selecting investments,” he says.

Profit likes U.S. multinational companies with revenue streams that benefit from multiple geographic locations and offer downside protection. His firm is focusing on stocks in the technology and healthcare industries due to the need for such products and low investor expectations. He says equities that have become more attractive during the recent market activity include Google Inc. (GOOG), EMC Corp. (EMC), Aetna Inc. (AET), and Costco Wholesale Corp. (COST). “It’s a great time to buy high-quality, large, successful U.S. companies at what will be seen to be bargain prices in future years,” he says.

Look for bargains. Timothy Fidler, senior vice president, co-portfolio manager of focused-value strategies, and portfolio manager of mid-cap products for Ariel Investments L.L.C. (No. 6 on the be asset managers list with $5.5 billion in assets under management), agrees that market downturns offer some great opportunities: “If you’re a longer term investor, buying shares of very high-quality businesses at these prices will give you some attractive returns.”

He says Lazard Ltd. (LAZ), one of the world’s largest investment banks, falls into that class. The firm advises clients on mergers, acquisitions and restructurings, as well as operates an asset management business. Fidler says that unlike its rivals such as Goldman Sachs and JPMorgan Chase, Lazard is an independent firm without the balance sheet risks of its competitors with trading arms or mortgage portfolios. Moreover, Lazard is not being hounded by federal regulators regarding capital requirements. “What we like about the firm is that there is enormous pent-up demand for advisory services, particularly M&A, in the global economy,” says Fidler of Lazard, which at press time was trading around $26 a share from the mid $40s in May.

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