Tuesday, May 23, 2006

Have Faith in Quality

If you have been monitoring your retirement plan investment funds you may be very dissatisfied with the performance of a number of funds that are widely held in many Plans. Before you terminate what may be a good investment, consider what has been happening in the market and how you can evaluate funds that are positioning themselves for an eventual reversion to quality growth investing as the economy flattens and market volatility increases.

Growth stocks have severely underperformed over the last few years and mutual funds focused on this investment style have lagged along with them. In fact, many high quality growth stocks have become so attractive that they are no longer solely owned by traditional growth managers. Top value managers have been taking advantage of these relative value opportunities despite the fact that their returns have been severely punished because of it.

In fact, Joe Rosenberg, in an interview with Barrons this weekend, feels that: “we now have a situation where some of the largest companies, that were overvalued 6 years ago but have continued to grow earnings at10% -15% a year, are completely unloved on Wall Street..if I were a relative return manager this would be a no brainer for me. I’d love to run a large cap portfolio because these growth stocks are cheaper relative to the overall market than at any time in my experience on Wall Street”

In selecting or monitoring investment funds for your pension plan that may be positioned to take advantage of this situation look for those holding companies with sustainable competitive advantages, a strong record of consistent earnings growth and those trading at attractive historical valuations. Examples include; General Electric, Citigroup, Wal–Mart, Johnson & Johnson, American Int’l Group. These large cap companies are rated A+ by Standard & Poors. Another useful source of high quality stocks to screen your mutual fund is the SIVY 70 List complied by Michael Sivy of CNN Money.

Holding out a little longer on funds positioned for a market reversion to classic quality growth may make a lot of sense.


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