After Trump rally, equity
investors move into healthcare, retailers
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[March 24, 2017]
By David Randall
YORK (Reuters) - High U.S. share prices are pushing Lipper Award-winning
equity fund managers into the shares of beaten-down healthcare
companies, retailers and emerging-market stocks that they say offer a
greater chance for outsized gains.
Fund managers from Poplar Forest, Parnassus Investments and Brandes
Investment Partners are among the 2017 Lipper Award winners who are
concerned about the high valuation of the benchmark S&P 500 index. With
a forward price-to-earnings ratio above 18, the index is at the high end
of its historical range.
Even after tumbling on Tuesday, the index is up more than 10 percent
since Donald Trump's unexpected U.S. presidential election victory on
"It's absolutely harder to find stocks at attractive valuations" now
than it has been in the past few years, said Todd Ahlsten, lead
portfolio manager of the Parnassus Core Equity fund.
As a result, Ahlsten said he has been adding to his positions in
healthcare stocks such as Gilead Sciences Inc <GILD.O>, Allergan PLC <AGN.N>
and Novartis AG <NOVN.S>.
Healthcare stocks had fallen in price on concerns over possible drug
price controls ahead of the vote on the Republican bill to repeal and
replace President Obama's signature healthcare law. Shares of Gilead
Sciences have slumped 5.5 percent since the start of the year; shares of
Novartis are up 2 percent over the same time.
The vote, scheduled for Thursday, has now been postponed.
The S&P is up about 5 percent in the year to date.
"We feel like the rhetoric out there is creating opportunities," Ahlsten
J. Dale Harvey, portfolio manager of the Poplar Forest Partners fund,
said he has been trimming his energy and materials shares exposure and
buying into brick and mortar retailers whose stocks have come under
pressure as Amazon continues to expand.
"Mall-based businesses are facing declining traffic, but we're trying to
look for the proverbial baby thrown out with the bath water," he said.
"So far that has been early, but we have a habit of being early."
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recently added a position in mall-based Signet Jewelers Ltd, which is looking to
expand its number of freestanding stores. Shares of the company are down nearly
30 percent for the year to date and trade at a price-to-earnings ratio of 9.7.
"There's a lot of negativity embedded in its valuation that we think is not
warranted," Harvey said.
Not every Lipper Award-winning fund is turned off by the high valuations,
Robert Marvin, portfolio manager of the Hood River Small-Cap Growth fund, said
the recent stock market rally prompted him to buy recreational boat builder
Brunswick Corporation and recreational boat and yacht dealer MarineMax Inc.
Shares of both are up more than 10 percent in the year to date.
starting to see significant improvement in demand as middle- and upper-income
consumers feel the wealth effect," he said.
Kenneth Little, a co-portfolio manager of the Brandes Global Equity fund, said
high valuations have left his fund "significantly underweight" the U.S.
Instead, his fund has been adding positions in emerging markets such as South
Korea, Russia and Brazil, with large overweight in energy holdings and
The fund is focusing mostly on large-cap companies such as Russian oil producer
Lukoil, Brazilian aircraft maker Embraer SA, and South Korean auto parts maker
Hyundai Mobis Co.
"The U.S., broadly speaking, looks pretty fully valued to us," he said. By
comparison, in emerging market stocks, "if you look through the short-term
challenges, you have very good companies trading at very attractive prices," he
Thomson Reuters Lipper is a division of Thomson Reuters Corp, the parent company
(Editing by Jennifer Ablan and Bernadette Baum)
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