Legg Mason held a Mid-Year Investment Outlook for financial journalists Tuesday morning at the New York Times building in midtown Manhattan. Five portfolio managers shared their thoughts in a question-and-answer format moderated by Steve Bleiberg, Legg Mason's head of global asset allocation. The panelists included: Brian Angerame, portfolio manager at ClearBridge Advisors; Chris Clark, portfolio manager at Royce Funds; Mike Buchanan, global head of credit at Western Asset Management; David Lazenby, head of emerging markets at Batterymarch Financial and Tim Schuler, a strategist at Permal Group. The outlook provided an opportunity to hear from some of the minds behind Legg's small cap, large cap, fixed income, emerging markets and hedge fund teams.

While the panelists spoke largely in terms of recovery, they were still hesitant to proclaim an entirely rosy outlook. Angerame noted that while ClearBridge funds have generally fared well in the past months, he is not yet “seeing green shoots," and his focus as of late continues to be the debt fundamentals of the securities he invests in. Angerame did see some clear investment opportunities, and touted investments in areas such as energy infrastructure and technology, noting that while consumption patterns may change, the need for the production of both clean and “dirty” energy, as well as means by it is transported will remain strong in the coming months.

Schuler likewise said that the global macro hedge fund space recovery is equally sluggish, and that we may have to get used to the idea that "one percent GDP is the new three percent GDP," as well as diminished trend line growth. Accordingly, he stressed the need for investment in liquid markets such as currency and large-cap stocks.

Clark saw global stimulative measures as leading to opportunities in growing population centers, where changing consumption patterns are driven by a growing consumer class. He noted that diversification among alternative investment strategies should be considered a tool, and not the "holy grail," and envisioned strategies with multiple outcome scenarios as opposed to strategies whose success depends on one event or set of events. Clark also noted opportunities in small-cap mutual funds, especially as highly leveraged small cap ETFs have created a volatility in the small cap world that have create an arbitrage opportunity for long-term small-cap investors.

Buchanan gave his outlook on financial sector investments in particular, calling banks an “interesting opportunity” and noting that Western will maintain its overweight ratings on financials based on the belief that the "strong are getting stronger."

Some more general conclusions reached at the end of the press briefing were that expectations for returns in funds need to be pared back, even in pension plans. Risk profiles will take a long time to be repaired, and equity managers will need to "get back to basics" and be part of the solution by resisting the temptation to chase exotics. Presenters agreed that no significant changes will be made to quant models among the Legg subsidiaries, and managers will instead continue to look for predictive characteristics and try to improve efficiency in their portfolio selection. 

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