Richard Brody, manager of the Prudential North American fund, has pared back an overweight position ...
Richard Brody, manager of the Prudential North American fund, has pared back an overweight position in telecoms, taking the opportunity of a sector rally late in 2002 to extract profits.
The £146m fund has a minor bias away from large-cap stocks and is currently overweight in energy, financials and consumer cyclicals such as retail and auto stocks.
'We are still moderately overweight telecoms but that has come down over the past month or so,' he said. 'The sector had a rally in the fourth quarter and we took advantage of that to sell some stock.'
Brody believes there is currently little value in the technology and healthcare sectors. He said: 'We have been increasing our weighting in healthcare but it is still underweight. We are finding more value outside pharmaceuticals and instead prefer healthcare providers like hospital management and health insurance companies.'
The fund has returned -32.5% over the 12 months to 10 February, against a North America sector average of -35.7%, to rank 17 in a field of 88, judged offer-to-bid. Brody, one of three US-based managers at PPM America that run the fund for Prudential, said the bear market has led stocks that were previously out of his price range to now offer attractive value.
He added: 'It is on an individual stock basis but we are now able to invest in a stock like Home Depot, which we have never been able to have an active weighting in before. We think the market is looking at it in too short a timeframe, which has brought down the valuation to an attractive level.'
Other stocks the fund was able to buy in 2002 following years in which they were out of reach included General Electric, pharmaceutical group Merck and Hewlett Packard.
Brody said the fund is around 60% invested according to a 'pure value' approach, targeting stocks priced at significant discounts the managers believe are either temporary or unrelated to the fundamentals of the company and, therefore, unjustified.
The balance of the portfolio is invested to ensure the overall fund stays within set risk control guidelines on sector weightings and industry and individual stock limits. That component of the portfolio therefore contains growth-oriented stocks but the overall bias of the fund remains value-oriented, Brody said.
Brody expects US government proposals to remove taxes on company dividends to provide a lift to value shares by increasing investor demand for dividend-yielding stocks.
'The dividend yield in the US market is still considerably below the yield in the UK market' he said. 'The yield on the S&P500 is still only around 1.9%-2%, so there isn't as much focus on dividends in the US.'
'We don't require a yield when looking at an individual company but, all other things being equal, we do like dividend yield.'
What made financial headlines over the weekend?
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch