How to invest in a falling-rate environment
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What about bonds?
Total returns from bonds have improved in the last couple months as rates have come down, so if you're an existing bond fund holder you should have done pretty well. For the new entrant looking to make a purchase of a bond fund, the only thing I can suggest is that rates are now back down in the Treasury market to as low as they've been in some time, so the prices have been pushed up. We don't particularly look at now is this a great opportunity to buy a bond fund. For just raw opportunity it still offers a good diversification benefit, but we think the return opportunity is going to be somewhat limited in general.

The typical individual investor may not realize that (the Fed rate cut) has really already been reflected in the bond market with prices going up and yields coming down the last few weeks. That doesn't necessarily mean good things will happen to your bond fund investment; in fact, not much might happen at all.

The market has priced in about 75 basis points of future Fed cuts through March of next year; so, over the next six months or so 75 basis points of cuts. Do they go further than that? That will play out, but that's what the expectations are that are built in right now.

Real estate, another major investable asset class, didn't start to roll over because of higher rates; it was that prices got ahead of themselves in a lot of commercial and residential properties around the country. We think that that's not necessarily going to be helped by small Fed rate cuts on the front end. I think it will take a little longer to work out, so we're not really particularly active in real estate or REITs right now.

Stocks are tops
Equities are still our favorite place to be. We find lots of value in a lot of areas, particularly the large-cap U.S. market. Growth is a lot more attractive in our view right now. We like the health stocks and technology stocks; they're coming along pretty nicely this year after several years of underperformance as well.

I think we'll have a bumpy ride in financials, but we have been allocating new dollars there. Some of the stocks have really come down and can be bought at attractive valuations, but we're paying a lot of attention to the amount and type of exposure they have to the worst-performing part of the loan market because it will take some of these companies a long time to recover. Some of the others don't have a lot of exposure and have probably been over-punished. I don't expect they'll have a big run between now and end of year, but they represent a pretty good value over the next couple of years.