NEW YORK (Reuters) - Noted value investor David Dreman said on Tuesday he is buying stocks but avoiding corporate bonds and U.S. Treasuries due to concerns about inflation.
“I’m terrified of bonds,” Dreman, the chief investment officer at Dreman Value Management LLC, told Reuters. “I think we’re going to have some of the worst inflation, with all the printing presses around the world running 24/7.”
For fund managers who can invest in real estate, now may be a time to buy, he said.
“Probably the two worst investments over the past two, three years have been stocks and real estate,” Dreman said. “They could be the best investments two or three years out.”
Dreman said he does not invest in real estate, and he is also avoiding bonds, including corporate debt, Treasuries and TIPS, or Treasury Inflation-Protected Securities.
“People are starting to worry about inflation,” he said in New York, on the sidelines of a conference sponsored by the New York Society of Security Analysts and Thomson Reuters. “Even TIPS you have to pay taxes on them.”
A U.S. recession that has lasted about 18 months is nearly over, he said, but problems in the banking sector are likely to linger, he said.
“I think we come off a bottom, but it’s probably going to take a couple of years before we get out of this, or have the banking problem solved,” Dreman said. “That’s still what we’re working through and what’s being done.”
Dreman cut staff from his Dreman Value management company in May after poor performance in 2008 cost him one of his biggest clients, DWS Investments.
The DWS Dreman High Return Fund (KDHAX.O) that he managed for DWS Investments fell 45.5 percent in 2008, spurring DWS to fire him in April. He bought a number of stocks that seemed cheap, such as Fannie Mae FNM.P FNM.N and Freddie Mac FRE.P FRE.N, but they declined in price.
Year-to-date through Monday, the fund is down about 2 percent, roughly average performance compared with its peers, but underperforming the Standard & Poor's 500 Index .SPX, which is up 0.2 percent.