Five Fund Managers Who Aren’t Afraid to Buy U.S. StocksBy , , and
Lately it seems like everyone's a bear on U.S. stocks. Profits have stopped rising, the Federal Reserve's about to act and booming overseas markets are luring investors elsewhere.
Fund investors have yanked $78.8 billion from mutual and exchanged-traded stock funds this year, the most since 1993. A gauge of equity sentiment compiled by the Conference Board shows just about all the bullishness that was drummed up in 2013, when shares rose the most in almost two decades, is gone.
Who's left to buy? For one, companies themselves, on pace for a record year of announced buybacks. Beyond that, the ranks thin -- though a bull can be found here and there, even among managers who are free to send money abroad. Here are five explaining why they're not afraid of owning shares even with all the gloom.
1) David Joy -- Economic Optimist
The U.S. is growing faster than most of its economic counterparts, sustaining the appeal of its equities, say David Joy, the Boston-based chief market strategist at Ameriprise Financial Inc., which oversees $815 billion.
Gross domestic product is forecast to rise 2.3 percent in 2015, followed by a 2.7 percent expansion in 2016, according to an economist survey conducted by Bloomberg. That exceeds the expected growth for the euro area and Japan for both years.
Recent volatility doesn't bother Joy, who sees technical levels on the Standard & Poor's 500 Index serving as a safety net.
``The S&P has tested its 200-day moving average and held it a few times, sometimes in dramatic fashion,'' he said. ``The domestic market has held right in there. There's an underlying confidence in the market.''
2) Bruce Bittles -- Consumer Champion
As lower oil prices free up cash and China's yuan devaluation makes imported goods cheaper, the American consumer is in good shape, according to Bruce Bittles, chief investment strategist at Milwaukee-based Robert W. Baird & Co., which oversees $110 billion.
That's why his firm is adding equities in the consumer discretionary and staples industries.
``Those are the two areas that will continue to do well in this trading range environment, because the fundamentals are more attractive,'' he said. ``Everything else we're leaving alone.''
Bittles isn't fazed by a Fed rate hike, regardless of whether it comes in September or December. To him, the tightening is already priced in and the expected 25-basis-point increase will have a negligible effect on share prices.
3) Michael Mullaney -- Follow the Fed
The initial Fed rate increase would clear up some uncertainty in the market, spurring a ``tail-loaded rally'' for U.S. stocks through the end of 2015, according to Michael Mullaney, who oversees $12 billion as the Boston-based chief investment officer at Fiduciary Trust Co. That would be similar to when the S&P 500 surged 11 percent from October through December of last year
Mullaney, who's loading up on U.S. stocks relative to fixed-income and international shares, says financial companies will be among the biggest beneficiaries of higher lending rates. They're expected to see earnings expansion of 15.7 percent in the fourth quarter, the second-most out of 10 sectors tracked by Bloomberg.
Technology companies also have higher earnings prospects as they spend more on expanding their businesses, Mullaney said. Profit for the sector is forecast to climb 12.3 percent for the full year, trailing only health-care companies in the S&P 500, according to an August 14 analyst survey compiled by Bloomberg.
Both S&P 500 industries are expected to post more than 5 percent profit growth this year through 2017, the estimates show.
``There's a litany of reasons why people aren't getting aggressive in portfolios and staying on the sidelines,'' he said. ``We hope that these will alleviate themselves into the end of the year.''
4) Donald Selkin -- Buying Dips
For Donald Selkin, who helps manage about $3 billion as chief market strategist at National Securities Corp. in New York, what goes down is likely to come back up.
That's the conclusion he's drawn from watching the S&P 500 hang within 3.5 percent in either direction of where it started the year while being battered by mini-selloffs. Confidence in the dip is one reason why he's continuing to add shares.
``Until proven otherwise, the market is buying the dip,'' he said. ``I can't say I'm bearish here. Despite what's been thrown at it, the market has shown some resilience.''
Selkin is sticking with the bull market's biggest winners, from Amazon.com Inc. to Netflix Inc. -- even Apple Inc., which is mired in a correction.
He also still likes the iShares Nasdaq Biotech ETF, which has surged more than 500 percent during the bull market, though it's down 7.5 percent since reaching a record in July. To Selkin, you should buy struggling stocks when their long-term prospects are appealing.
``You want to buy on weakness when it comes to the sectors that have done well,'' he said. ``Just don't chase it.''
5) Steve Gutch -- Stock-Picking
Gutch is looking at the stock market's most tattered sectors and buying on the fringes.
With nearly half of stocks in the S&P 500 meeting the definition of a correction, Gutch, senior portfolio manager at Federated Clover Investment Advisors in Rochester, New York, says now is as good a time as any to hunt for value -- but proceed with caution when it comes to the market's biggest losers.
``This type of year is very challenging but has not been bad for stockpicking,'' said Gutch, who helps oversee $350 billion at Federated Clover. ``We're not actively looking to put money into the stuff that has absolutely gotten destroyed like energy and materials, but some industries within those sectors are trading at low valuations.''
Take oil refiners, for example. While they're part of the most beaten-down group in the S&P 500, companies like Tesoro Corp. and Valero Energy Corp. have added at least 40 percent since the start of the year. In the raw-materials space, down 6.3 percent for the year, Gutch is starting to see value in packaging companies.
``We're adding to both,'' he said. ``Valuation always comes into play but we want companies that generate significant cash flow. That's the underlying thesis we're looking at.''
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