14
Fund Managers Lukewarm on Almost Everything
How do fund managers view the markets? “Meh.”
That’s how I’d summarize the three days of our annual
Morningstar Investment Conference. Over and over,
I heard managers express the view that stocks were
pretty fairly valued. I heard neither gloom nor opti-
mism. The consensus was that the global economy
would keep chugging along for the next couple of
years, so there was no urgency to get out of stocks or
even cut back credit risk in bond portfolios.
However, there was consensus that interest rates
in the United States would likely rise significantly
in the coming years, and that led many managers to
move away from longer-dated debt in the U.S.
GMO
’s Ben Inker and BlackRock’s Dennis Stattman
said they were spreading their bets around the world
in stocks and bonds. Typical was Inker’s comment
on
5
–
7
year Treasuries: “It’s not a great place to be,
but you’ve got to be somewhere.”
Inker stood out for being particularly pessimistic on
U.S. small caps, however. “We wouldn’t touch them
with a
10
-foot pole,” he said.
Inker does like some smaller European cyclical names.
Stattman continues to be very bullish on Japanese
stocks: “This is a multiyear bull market in the very
early stages,” he said.
Yet, neither seemed to see big dangers around the
next corner. Stattman has been selling gold, and
Inker has been cutting Treasury Inflation-Protected
Securities exposure—a sign that neither is par-
ticularly worried about inflation in the near term.
PIMCO
’s Bill Gross was pretty tepid toward the bond
market, too. He explained
PIMCO
’s “New Neutral”
thesis, which argues that real interest rates will rise
from their current negative
1
.
25%
to around zero, but
Fund Manager Changes
Fund News
American Funds Europacific Growth AEPGX
Impact:
Negative
Date:
05-30-14
Rob Lovelace has stepped down from the fund, though he will continue on his other two funds. His replace-
ment is Lawrence Kymisis, who has 19 years of investment experience and has been a comanager since 2007
on American Funds SMALLCAP World SMCWX.
|
Our Take: It’s a blow to lose one of the most-seasoned and
best-known managers at the fund. However, with 10 listed managers plus a sleeve run directly by analysts, it’s
likely that Lovelace was running less than 10% of the portfolio. Many seasoned hands remain at the fund.
Appleseed APPLX
Impact:
Negative
Date:
06-30-14
Ronald Strauss and Rick Singer are set to retire at the end of June.
|
Our Take: We are maintaining our Bronze
rating because three comanagers remain who have been leading the way. Bill Pekin, Adam Strauss, and Josh
Strauss are the managers we’ve spoken to over recent years, and we feel comfortable with them in the lead.
Calamos Market Neutral CVSIX
Impact:
Negative
Date:
06-26-14
Lead manager Christopher Hartman has left. Eli Pars was added to the management team in his place.
|
Our
Take: We placed the fund Under Review while we look into how the fund will be run.
FPA Perennial FPPFX
Impact:
Negative
Date:
06-03-14
Steve Geist is retiring from FPA. Comanagers Eric Ende and Greg Herr will divide his duties.
|
Our Take:
Herr was named comanager in August 2013, so he’s quite new, but Ende has been on board since 1999.
That reassures us that the fund is still in good hands. We have lowered our rating to Silver from Gold to
reflect both the loss of Geist and our confidence in Ende and Herr.
T. Rowe Price Equity Income PRFDX
Impact:
Negative
Date:
10-31-15
Brian Rogers will step down in October 2015 and be replaced by John Linehan, who ran T. Rowe Price Value
TRVLX from 2003 to 2009. From 2009 to now, he’s served as head of T. Rowe’s U.S. equity team.
|
Our
Take: Linehan has a decent record but it’s not the equal of Rogers, so we have lowered the rating to Bronze
from Gold.
Third Avenue International Value TAVIX
Impact:
Negative
Date:
06-30-14
Amit Wadhwaney is leaving. Matthew Fine, who has comanaged the fund since 2012 and had been an analyst
on the fund since 2003, will take over as the lead manager. Wadhwaney’s exit comes in the wake of other
departures from the international team. In April 2013, Jakub Rehor, who had been a long-tenured analyst and
named to the fund’s portfolio-management team in January 2013, left the firm. Two other analysts also left
that month, though Third Avenue has since brought them back as consultants.
|
Our Take: Wadhwaney and the
analysts’ departures are a big blow, and we’ve downgraded the fund to Neutral.
Third Avenue Value TAVFX
Impact:
Negative
Date:
06-10-14
Robert Rewey III has replaced Ian Lapey. Rewey comes to Third Avenue from Cramer Rosenthal McGlynn. He
was one of several comanagers, so he doesn’t have much of a track record.
|
Our Take: We have lowered the
fund to Neutral from Bronze because of Rewey’s record and because there seems to be a steady exodus from
the firm.
Vanguard Selected Value VASVX
Impact:
Neutral
Date:
03-31-14
Vanguard is adding Pzena Investment Management to the roster of firms managing the fund. Pzena will start
small and gradually build up as Vanguard sends inflows the firm’s way. Barrow Hanley runs 74% of assets, and
Donald Smith & Co. runs 26%.
|
Our Take: This will have little impact at first but may matter down the road.
Pzena is a deep-value firm with a strong long-term track record, but it was hit hard in 2008.
