15
Morningstar FundInvestor
May 2
014
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.
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