move increases North american growth fund's exposure to technology stocks from 10% to 15%
The manager of the ABN Amro North American Growth fund has reduced his aggressive negative bet in technology stocks.
The fund is managed by David Watson of Montag & Caldwell in the US. The move represents the group's closest proximity to a market weighting in technology stocks for many years.
The fund, launched in November last year, is based on the long-term investment process employed by Montag & Caldwell. The group has spent 25 years developing this process, which focuses almost exclusively on large-capitalisation stocks.
The fund holds between 30 and 40 stocks and is currently at the more concentrated end of the range, with 33 holdings.
Watson, who joined Montag & Caldwell in February 1999, has recently bought Seibel and BEA Systems. The purchase of these stocks means 15% of the fund is now invested in technology, only marginally lower than the sector's 16% representation in the S&P 500.
Previously, the group had been underweight technology for several years, holding as little as 10% of the portfolio in the sector at a time when technology stocks represented 18%-19% of the S&P 500.
Fortunately, when the technology bubble burst in early 2000, the fund was underweight the sector, holding 21% of the portfolio in technology, compared to a 35% representation in the S&P 500.
Watson said although excess capacity problems continue to dog technology stocks, a moderate recovery in the US should eventually feed through to these companies. He expects single-digit earnings growth from US companies this year.
'Economic indicators continue to point to economic recovery,' he says. 'However, a significant proportion of the current activity is most likely resulting from the replenishment of business inventories following 11 consecutive months of drawdown, so the current pace of recovery may not be sustainable.
'In addition, the trend of corporate profits, while positive, will be moderate due to a lack of pricing power and more conservative accounting practices.'
The fund is overweight healthcare and consumer staples, which represent 23% and 24% of the portfolio respectively, about double their market weightings. There is also a cyclical influence in the fund, Watson said.
The portfolio is overweight industrial stocks such as Caterpillar and 3M. Negative sector bets include basic materials, utilities and telecom services, where Watson holds zero exposure. The fund is underweight energy stocks.
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