Daily Management Review

Healthcare, Retailers The New Interest For Equity Investors After Trump Rally


03/27/2017




Healthcare, Retailers The New Interest For Equity Investors After Trump Rally
Shares of Beaten-down healthcare companies, retailers and emerging-market stocks are offer a greater chance for outsized gains, say Lipper Award-winning equity fund managers and they are being pushed towards these due to the high U.S. share prices.
 
Concerned about the high valuation of the benchmark S&P 500 index are the 2017 Lipper Award winners which include fund managers from Poplar Forest, Parnassus Investments and Brandes Investment Partners. The index is at the high end of its historical range with a forward price-to-earnings ratio above 18, the index is at the high end of its historical range.
 
Since Donald Trump's unexpected U.S. presidential election victory on Nov. 8, the index is up more than 10 percent even after tumbling on Tuesday.
 
"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.
 
healthcare stocks such as Gilead Sciences Inc, Allergan PLC and Novartis AG are being added to his portfolio as a result, Ahlsten said.
 
Ahead of the vote on the Republican bill to repeal and replace President Obama's signature healthcare law, healthcare stocks had fallen in price on concerns over possible drug price controls. While shares of Novartis are up 2 percent since the start of the year, shares of Gilead Sciences have slumped 5.5 percent over the same time.
 
The vote has now been postponed and was scheduled for Thursday,.
 
The S&P is up about 5 percent in the year to date.
 
"We feel like the rhetoric out there is creating opportunities," Ahlsten said.
 
While buying into brick and mortar retailers whose stocks have come under pressure as Amazon continues to expand, he has been trimming his energy and materials shares exposure, said J. Dale Harvey, portfolio manager of the Poplar Forest Partners fund.
 
"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."
 
Signet Jewelers Ltd, which is looking to expand its number of freestanding stores, has been added to his position recently. Shares of the company now trade at a price-to-earnings ratio of 9.7 and are down nearly 30 percent for the year to date.
 
"There's a lot of negativity embedded in its valuation that we think is not warranted," Harvey said.
 
However the high valuations have not off every Lipper Award-winning fund.
 
Since both are up more than 10 percent in the year to date, he was promoted to buy shares of recreational boat builder Brunswick Corporation and recreational boat and yacht dealer MarineMax Inc. due to the recent stock market rally, said Robert Marvin, portfolio manager of the Hood River Small-Cap Growth fund.
 
"We're starting to see significant improvement in demand as middle- and upper-income consumers feel the wealth effect," he said.
 
High valuations have left his fund "significantly underweight" the U.S., said Kenneth Little, a co-portfolio manager of the Brandes Global Equity fund. Instead, with large overweight in energy holdings and healthcare, his fund has been adding positions in emerging markets such as South Korea, Russia and Brazil.
 
(Sourcewww.reuters.com)






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