The medium term future of US retail stocks remains in question with some managers forecasting a peri...
The medium term future of US retail stocks remains in question with some managers forecasting a period of stock specific outperformance while others remain doubtful of a turnaround.
The opportunities for stock-pickers to add value are further enhanced by mixed perceptions about whether US interest rates have peaked and retail stocks bottomed out.
Alison Wright, an investment manager at Britannic Asset Management, says that after a rebound in June from heavily oversold positions, selected retail stocks are poised to outperform the S&P 500 in the back half of the year.
There is still a degree of uncertainty in the market, according to Wright, about the extent of the impact of an economic slowdown with the market tending to be pessimistic. She says the market's negative perception is backed up by a continuing bad news flow, which saw K-Mart announce the closure of 70 stores last week.
She says: "It is a good sector for stockpickers and from time to time there are some very good buying opportunities. We are neutral to slightly negative, but coming into the last quarter, we could see some outperformance. For the near future we would expect to see retail stocks to do very little."
She says Britannic was much more aggressively underweight until a month and a half ago when it became clear the market had priced retail stocks for a dramatic slowdown in US consumer spending.
That is a scenario which Wright thinks has lessened dramatically. Wright owns the internationally expanding Wal-mart, Radio Shack, which has a strong wireless and services industry and is soon to open Microsoft stores within its shops, and Home Depot, the DIY sales outlet.
Suhail Arain, fund manager on the M&G American Fund, is aggressively underweight US retailers with a position of 2.5% compared to the 6% weighting in the S&P 500, a position he has maintained for the last six months. Arain says retail is a sector suffering from intense pricing competition and over-capacity and that until there are stronger indications that interest rates have peaked, he will not be upping his retail content.
He says: "The market will segment into domestic companies, which will continue to struggle, and the companies who will expand internationally. The latter will export their way of marketing and their way of retailing, which is something we have never witnessed in the UK and which will be very bad news for the likes of Tesco and Sainsbury's."
David Currie, head of the US desk at Edinburgh Fund managers, is underweight consumer cyclicals and believes the retail sector will go down again before it goes up. Currie says there are conflicting arguments about the merits of the retail sector with slowing consumer confidence and an extremely tight retail environment competing in the minds of fund managers with the perception that interest rates are near or at their peak.
He says the market is not reacting well to the flow of bad news out of the retail sector, a flow that he believes is set continue. Currie, who owns Wal-mart and to a lesser extent Costco, sees good longer term plays in digital appliance retailers like Circuit City and Best Buy, but does not see sparkling near-term performance from either.
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