Cheap Oil, Crisis Rates Have $3 Billion Manager Hoarding Stocks

  • Low central bank rates priced into banking sector valuations
  • Manager looking to add risk to holdings of oil producers

While a sluggish global expansion is luring some investors into defensive stocks, a key portfolio manager at Norway’s biggest bank says now is the time to buy the beaten-down banks and oil producers.

”Energy is struggling with the low oil price and banks with low rates and low profitability,” Einar Johansen, who manages about 25 billion kroner ($3 billion) in global equities at DNB ASA, said in an interview Wednesday in Oslo. But prospects are looking up for oil producers amid a rise in crude while some banks are now strong enough to cope with even negative rates, he said.

Citigroup Inc. and Anadarko Petroleum Corp. are the largest holdings in his DNB Global fund. “Quality” banks, which have built up capital, will continue paying dividends and still look cheap, even after a rally since February. Johansen also bought shares in Lloyds Banking Group Plc and ING Groep NV earlier this year.

“Low rates are priced in at current levels,” he said. “At least the banks we have invested in make good money even in today’s rate regime. Banks also find ways to make money in other ways.”

In the energy industry, Johansen is looking to add more risk and is considering buying U.S. onshore producers such as EOG Resources Inc., Noble Energy Inc. and Devon Energy Corp. The oil price is below its long-term equilibrium, he said.

“Energy is a sector where there’s a higher probability that we buy more than that we’ll sell again,” he said. “What is happening in the oil market is positive and is developing according to our forecasts. We’re not buying oil service yet but the more risky producers. We’ve been in the quality segment but we think we can take more risk regarding companies.”

The manager is also overweight in technology, which offers “good margins” in line with broad market valuation, while he’s underweight in the defensive consumer sector. The uncertain macro environment is seeing investors pay up for solid companies such as Nestle SA and Procter & Gamble Co., he said.

“You have to pay extra for those attributes,” he said. “They are almost a little bit too expensive. Not extremely overvalued but on the expensive side.”

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