BlackRock's Stattman favors high-dividend stocks

CHICAGO (Reuters) - Dennis Stattman, manager of the $54 billion BlackRock Global Allocation Fund, is overweighting stocks but is not happy about it.

"Stocks are the best game in town," Stattman said on Thursday at the Morningstar investment conference. "The problem is it's not clear they're a good game."

Stocks appear inexpensive based on price-to-earnings ratios, but Stattman said he expects profit margins will shrink over the next few years. He is also worried that stocks will be hurt when the Federal Reserve eventually ends its aggressive measures to stimulate the economy.

On the other hand, BlackRock is "very underweight" bonds in the allocation fund, he said. "You are not getting any reasonable sort of coupon on any of the world's sovereign debt," Stattman said.

The bonds the fund does own currently are mainly convertible bonds or short-duration securities, he said.

Stattman's fund has gained almost 18 percent over the past year, trailing two-thirds of similar funds, according to Morningstar. But the fund's average annual gain of 8.4 percent over the past 10 years beat 79 percent of its peers.

Given the risks to equities, BlackRock favors large-capitalization stocks paying relatively high dividends. Top holdings at the end of March included Exxon Mobil, General Electric and IBM, according to BlackRock's web site.

"The global integrated oil companies seem dirt cheap to me," Stattman said. "They seem to be compelling investments."

IBM will benefit from its global exposure and a promising plan to double its earnings by 2015, he said. Trading at 11 times expected 2012 earnings, the stock is "a very inexpensive, high-quality way to participate in the growth of the global economy."

Stocks of companies based in emerging markets are at risk because of tighter monetary policies being used to fight inflation in countries like China, India, Russia and Brazil, he said.

"Inflation in the developing markets is a big concern for us," Stattman said. "The bad news is, generally speaking, where you have tightening monetary policy you have shaky markets."

Still, many stocks have already sold off on those concerns and emerging markets look more appealing than they did eight or 10 months ago, he said. "We're starting to look again," he said.

(Reporting by Aaron Pressman; editing by John Wallace)