Is there a new Nifty Fifty looming on the equity market's horizon? Loomis Sayles vice chairman Dan Fuss hinted that there might be some variant of that phenomenon from the late 1960s and early 1970s, as he told attendees at the firm's annual press briefing that he was increasingly confident that equities would outperform bonds over the next few decades.

On the latter point, Fuss is one of many fixed-income luminaries warning that bond investors should have very modest expectations. Others include BlackRock CEO Larry Fink, who says he personally is invested nearly 100% in equities, and Pimco's Bill Gross, who has said stocks should beat bonds.

Late last month, Fuss and other portfolio managers at Loomis Sayles launched a Capital Income Fund that will invest at least 70% of its assets in equities. By using Fuss and his longtime colleague Kathleen Gaffney to manage the fixed-income part of the portfolio, the fund will have the ability to examine all levels of a company's capital structure, says Warren Koontz, the firm's large-cap value expert.

Fuss has actually favored equities for several years. Twelve months ago he predicted the markets were poised to begin a multi-decade bear market for bonds, a bear market he acknowledges has yet to display any significant momentum. "We are somewhere in the foothills of a gradual rise in yields," he said.

Asked about his view, Fuss said there is no such thing "as a growth bond. A dividend can go up over time."

As for corporate America, Fuss favors companies that can improve their credit in a rising interest rate environment and incrementally gain an advantage in their cost of capital. He doubts the bond market will experience the massive surge in yields that it did in the 1960s and 1970s and expects it to be somewhat more orderly. "But no one really knows," he concedes.

Where something like a Nifty Fifty comes into play for equities is when you can find certain companies that cannot only access capital cheaply, but enjoy strong unit growth in sales, leading market shares in key product lines that they can expand and global franchises to achieve faster revenue growth than can be found in mature economies.

 

Fuss didn't say it, but the growing likelihood of a Darwinian business environment emerging along side of globalization has significant implications. To get an idea of what it may look like, just examine what Apple and Google have done to the two cellphone manufacturers that used to dominate that market-Nokia and Research In Motion.