Although investors continue to avoid highly priced technology stocks, there are signs further down t...
Although investors continue to avoid highly priced technology stocks, there are signs further down the scale that the growth/value distinction is starting to become blurred, according to fund managers.
Neil Brennan, of Schroder Salomon Smith Barney, points out that during March, value stocks appeared to outperform growth stocks. But outside the technology sector, he believes style bias has had little effect on performance.
"From an initial look at the data, the likely first response is that value stocks were dominant during March," he says. "However, there was little consistent style bias across the deciles in terms of P/E and sales growth figures. Essentially, the most expensive and highest-growth stocks substantially underperformed, while the other deciles performed roughly in line with the market."
With little evidence that the underperformance of expensive stocks has passed, Brennan believes care should be taken in overweighting technology until a clear confidence trend is evident.
Chris Complin, fund manager at JP Morgan Fleming, believes investors are continuing to avoid highly-rated stocks because of concerns about their earnings outlook in particular, the fear that an earnings disappointment could see the share price slashed, as was recently the case with Autonomy.
Autonomy has fallen 74.90% for the year to 9 May compared to a -3.44% return in the FTSE All Share index over the same time period.
"Expensive stocks are extremely sensitive to newsflow, which is not the case, or certainly not to the same extent, with cheap stocks, where the incentive to sell on a disappointment is much lower," he says.
Complin adds that some areas of technology have now fallen into the 'value' arena, defined as the cheapest 30% of the market. "The continued fall of some technology stocks has seen certain segments begin to look cheap," he says.
"Semiconductor stocks, for example, are looking good value a stock like ASM International, on a forward P/E of 9.3, is cheap against the market P/E of around 20 times."
While JP Morgan Fleming's growth fund is relatively heavily weighted in technology, media and telecoms stocks, with around 27% in this area, against the benchmark 22.5%, the value fund contains only around 2%.
It is more heavily weighted in value cyclicals, with areas such as banks, construction and building materials, engineers, general retailers, chemicals and transport all represented.
Senior portfolio manager at Dresdner RCM Global Investors, Juliet Cohn, says the general performance of Continental Europe has been disappointing, despite the fact that it has figured prominently on most investors' buy lists for some time.
She says: "We have seen a sharp increase in volatility in the market: a 1-2% morning fall can be reversed to a rise of a similar magnitude by mid-afternoon."
Cohn believes current volatility is also driven by investors' enthusiasm to buy into the market because of likely cuts in interest rates, tempered by doubts cast by downgrades on earnings expectations.
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