Jeremy Grantham's firm is allocating assets “with great difficulty,” he said while speaking at the 2015 Morningstar Investment Conference in Chicago on Wednesday.
“The Fed wants everybody to reach. We're reaching, but only a little bit,” said the co-founder and chief investment strategist at Grantham, Mayo, Van Otterloo & Co.
He warned investors to be prudent, but to be “very, very prudent” closer to the U.S. election.
When asked about interest rates, Mr. Grantham said every asset class is yielding 2% less today because of where interest rates are. And if they don't go back up, “pension funds are screwed.”
Mr. Grantham spoke about an array of issues affecting the investment landscape; from climate change and resource limitations, to income inequality and Federal Reserve policy.
He echoed the recent call of institutional asset owners and money managers for greater capital expenditures by corporations.
Mr. Grantham argued the proliferation of stock options to compensate executives has reinforced short-term thinking and will ultimately become a drag on economic growth. “Senior (executives) using cash to buy stock back is much less dangerous than building a new factory,” Mr. Grantham said.
He described a cycle where no capital expenditures leads to no demand, and in turn, no demand leads to no capital expenditures.
Mr. Grantham reiterated his thoughts from the firm's most recent quarterly newsletter that equity markets aren't in bubble territory yet; a level he said in April to be 2,250 for the S&P 500 (6.7% above Wednesday's close).
He said the market is “broadly overpriced,” but we have yet to see a trigger to pop it. Individual investors are buying normal amounts of stock, he said. Bubbles don't break until individuals rush into the market, he added.