The Wall Street Journal-20080123-Credit Crunch- Markets- Ride- Survival Guides- Fund Managers- Insights- How Some Smart Money Is Playing the Global Downturn- Stock Up on -Heart Medication-
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Credit Crunch: Markets' Ride: Survival Guides: Fund Managers' Insights; How Some Smart Money Is Playing the Global Downturn; Stock Up on 'Heart Medication'
The market turmoil is forcing money managers across the spectrum to re-examine their holdings as they look for an edge.
Here are the views of five mutual-fund managers with specialties in specific sectors:
Emerging-Market Worries
Emerging markets were the belle of the investing ball in 2007. Now the music has stopped.
Howard Schwab, who heads Driehaus Emerging Markets Growth Fund, piloted the portfolio to a 42% gain in 2007. As of yesterday it was down about 17% for the year.
Mr. Schwab doesn't expect these markets to bounce back right away. "This is more of a trend change," he says, rather than a short-lived correction.
Mr. Schwab recently unloaded holdings, such as a Chinese milk company, amid worries that it wouldn't be able to pass along rapidly rising costs to customers.
At the same time, he is increasing his stake in firms that are in good position to weather the global environment, but which still got punished. One such firm: India's Reliance Communications Ltd., a telecommunications company whose shares fell more than 20% in two days.
Mr. Schwab says markets such as China, which did exceptionally well last year, look less attractive now. Instead, he is looking at places such as Taiwan and Thailand, last year's laggards.
-- Joanna Slater
Technology Shocks
Tech stocks have taken a beating, but Bob Turner, lead manager of Turner Core Growth Fund, still thinks there is potential this year.
While the tech-stock-heavy Nasdaq Composite is down more than 10% this year, Mr. Turner points to many companies trading at attractive prices when compared to their earnings growth rates. In particular, stocks such as Microsoft Corp., Oracle Corp., Cisco Systems Inc., Nokia Corp. and International Business Machines Corp. can be appealing "even if U.S. economic growth slows," given many such firms garner half their sales abroad.
One challenge: earnings. Disappointing earnings from Intel Corp. last week, for instance, has pressured the stock, which is down about 30% so far this year. Yesterday, Apple Inc.'s stock fell in after- hours trading despite a 57% rise in fiscal first-quarter net income since the company's second-quarter forecast fell below expectations.
Such market-sensitivity and other issues could mean it is best to stay focused on larger, rather than small or midsize, tech stocks in coming months, Mr. Turner says.
-- Diya Gullapalli
Recession Protection
Jeff Tyler, a portfolio manager for American Century Investments, predicts a "modest recession" for the first half. So he is shopping for companies that sell essentials.
"Drug companies, for instance," he says. "You need your heart medication. Just because the stock market is off doesn't mean you don't need it. If anything, you need it more."
Mr. Tyler is manager of the Kansas City company's asset-allocation mutual funds, which attempt to manage returns by using different asset-allocation strategies depending on economic conditions. His American Century Strategic Allocation Fund/Moderate Investor returned 4.05% in the past 12 months, six percentage points ahead of the market, says fund watcher Morningstar Inc.
This year his strategy had been to go light on stocks (he has cut holdings to 54% from 60%) keeping the rest in cash and bonds with high credit ratings. But yesterday's market called for a shift back to more stocks, he says. "The markets historically do pretty well in the three-month and one-year horizons following a surprise Fed move."
-- Jennifer Levitz
The Commodity Boom
Amid the historic commodity boom of recent years, the recent market turmoil is creating a few opportunities, says money manager Evan Smith.
Mr. Smith co-manages the $1.6-billion U.S. Global Investors' Global Resources Fund, which invests in stocks of companies involved in producing and mining oil, gold and other and materials. The fund was up 40% last year, but is down 13% this year.
He says the selloff in the commodity-company stocks is "exaggerated" given that the price of oil and gold is still near records.
The Texas-based manager says in the long term he remains bullish on prospects for oil, gold and commodity companies in the agriculture and fertilizer businesses, given that demand from China and other developing countries should remain strong.
"Overall, there's a good buying opportunity for longer-term investors," says Mr. Smith.
Last year's run-up made stocks like these very expensive to buy, but that's changing slightly. For instance, Chinese energy company PetroChina Co.'s stock nearly doubled between August and October last year, but has since come down significantly. Mr. Smith says he is now looking to buy.
-- Shefali Anand
Time to Bond?
When asked yesterday where bond investors should focus right now given the turmoil in markets and the Federal Reserve's interest-rate cut, Robert Auwaerter, head of fixed income at Vanguard Group, offered two main answers: high-quality corporate and municipal bonds.
Often in a volatile market, safe Treasury bonds can seem like the best bet. However, these days nervous investors have already been flocking to Treasurys, which pushes their prices higher (and yields down). Two-year Treasury notes are offering about 2% yields, a multiyear low.
Mr. Auwaerter says a better choice could be investment-grade debt in industries that can withstand a recession. This includes electric- utility companies or conglomerates such as General Electric Co. One recent new issuance of DuPont Co. bonds that come due in early 2013, for instance, offered a juicy 5% coupon.
Top-quality municipal bonds are similarly offering generous yields compared with Treasurys.
-- Diya Gullapalli
