(PUB) Morningstar FundInvestor

May 2 014

Morningstar FundInvestor

15

The price tag could go up to $ 6 . 25 billion if various growth hurdles are met. TIAA - CREF plans to keep fees at both firms’ funds where they are. Giroux: Few Bargains on Offer T. Rowe Price Capital Appreciation PRWCX manager David Giroux told us in April he’s not finding a lot of attractive names in this market. “It is a challenging environment for a multi-asset class manager, especially a multi-asset class manager who really cares about protecting clients’ downside,” Giroux said. “The equity market is somewhat expensive. The median company and the S & P 500 is trading around 17 times earnings now. That’s basically the highest valuation level that we’ve seen in the last seven years. That’s a level that is not consistent with being able to find a lot of great value in the marketplace today. So the equity market is not great. “Now, typically, when you see the equity market some- what expensive, it means maybe bonds are attractive. The challenge is that interest rates are still low. They have come up significantly off the bottom, but still relative to history, relative to where they should be, they’re probably still a little bit low. “I would say the one area of both fixed income and equities where we see a little bit of value is what I would call the highest-quality high-yield bonds— companies that we think are sort of money-good, if you will, even in a difficult economic environment where you’re earning 4% to 5% for really high-quality BB bonds. “When we think about high-yield in general, we think high-yield is a little bit of a bubble, but most of that bubble is really on the CCC credits and the B credits, where spreads are well inside of history. We think the highest-quality BB s look attractive rela- tive to equities and relative to the fixed-income market in general.”

Strandberg: Some Values in Tech Dodge & Cox International DODFX manager Diana Strandberg says there are some reasonably priced stocks out there, particularly in technology. “Where we see opportunities today across the globe is expressed in where we have overweights relative to the market in our portfolio, so tech, media, and telecom would be one area that we see a lot of investment opportunity, in technology in particular,” she said. “In the U.S., we see opportunity in Inter- net and software companies. Internationally, we see opportunities in Internet and media, as well as telecom-equipment companies in particular. “Samsung is a Korea-based smartphone and consumer electronics company. They make DRAM components, as well as handsets, among many products that they make. We have followed Samsung actually for quite a long time. We’ve had meetings with managements, we have financial models, but as you pointed out accurately, in the third quarter last year, we started a position in the company for the first time. “What we see and how we think about some of these news items is that there is a lot of concern right now about the handset business at Samsung. And that concern, whether it’s because of recent litigation or the potential for competitive pressures to erode their high profitability, for example, we think have depressed valuation of the company. It’s about seven times earnings. It trades at less than 100% of sales, the market cap of the company. They’re net cash, have a high return on capital, and are profitable.” Outflows Continue at PIMCO PIMCO continued to suffer net outflows in April. The firm had net redemptions of $ 5 . 5 billion in April compared with $ 7 billion in March. About $ 3 . 1 billion came out of PIMCO Total Return PTTRX , followed by $ 720 million coming out of PIMCO Uncon- strained Bond PUBAX . Investors are likely respond- ing to sluggish performance as well as the contro- versy around Mohamed El-Erian’s departure. However, $ 5 billion is still a small amount for a firm with nearly $ 600 billion in fund assets and hundreds of billions more outside the U.S. fund total. œ