High growth and highly cyclical stocks appear equally attractive to many fund managers. Not only is ...
High growth and highly cyclical stocks appear equally attractive to many fund managers.
Not only is there the long term bullish tech outlook but cyclicals should be major beneficiaries of the increasingly rosy outlook for the world and European economy.
Adrian Paine, chief investment officer for European equities at American Express, says the group's European fund is focused on growth and has a major exposure to technology stocks with 38% of the fund in the area compared to a hybrid benchmark of around 14%.
Amex includes telecoms, cable companies, telecom infrastructure and semi-conductor companies under the technology umbrella and holds stakes in mobile giants Ericsson and Nokia as well as Colt and cable group UPC.
Paine says: "We try and pick the best stocks in each area of technology. At the moment these stocks are having a fabulous run, I sense we could see a moderate correction in some of the names but throughout 2000 I expect we will still make a lot of money."
Amex is a large cap manager and tends to stick to the bigger stocks with strong management teams. It also like the basic industry groups such as building materials and steel producers. The fund has been steering clear of pharmaceuticals, which it did not think could offer further growth in the near term, and retailers which were under pricing pressures.
Paine says: "For the first time in nine years European growth is accelerating faster that the US and European stocks are at a substantial discount to the US but the US has a collection of world beating stocks and we have to invest in European companies of the same calibre."
Ollie Beckett, a fund manager on the European equities team at Henderson Investors, says the group had a similar barbell portfolio and was overweight in technology and telecoms as well as cyclical stocks such as chemicals and steel and underweight in defensive stocks.
He says: "We are overweight in the cyclicals on the basis of continued economic growth. Interest rates are returning to more normalised levels and we expect to get that after the economic growth in the short term."
John Ewart, investment manager at Britannic Asset Management, says: "We expect European growth in the first half of next year to be very strong and see the obvious beneficiaries as cyclical areas. What we are also looking at is the impact if the bond yields rise significantly."
If bond yields rise, or there is an expectation of rising bond yields, technology stocks and similar growth stocks are expected to suffer. Adrian Darley, senior investment manager of the European team at Gartmore, says he also favours technology and telecoms stocks, Darley is about 6% overweight in telecom and 5% overweight in tech.
At the other end of the market he is overweight in luxury goods makers such as Gucci and LVMH. The recovery in the Asian market had also been a boon for the luxury good makers and the group has about 2.7% of the European funds in the area, by holding LVMH and Gucci, compared to the 1% benchmark.
He says: "LVMH and Gucci have doubled their stock price this year. As people become more confident in Asia and in their ability to spend then these are the key to maintaining growth in these companies.
"There is also a lot of consolidation in the sector with a lot of small family owned companies selling out. The companies that are buying them have big distribution networks and have taken the smaller companies' brands global."
Hendersons holds Gucci and Swatch due to the recovery of the Asian market and the beginnings of recovery in the Latin American market.
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