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Last Trade - 13/05/21

Sector
Consumer Defensives
Size
Large Cap
Market Cap £15.47bn
Enterprise Value £16.87bn
Revenue £3.54bn
Position in Universe 546th / 6851

Wall St Week Ahead-Licking their wounds, fund managers prep for rally in '19

Fri 7th December, 2018 12:00pm
By David Randall
    NEW YORK, Dec 7 (Reuters) - With bond and equity markets
from the United States to emerging markets all on pace to lose
money this year, investors have not seen this much red on their
screens since 1972, the last time no asset class returned at
least 5 percent. 
    Yet fund managers are finding things to like despite the
recent market volatility, which sent the Dow Jones Industrial
Average down more than 2 percent this week. 
    As they start to position their portfolios for 2019, fund
managers, from firms including ValueWorks, Sierra Investment
Management and Federated Investors, say they are looking at
sectors that could snap back next year thanks to a combination
of more attractive valuations and a decline in the dollar.
    Such a rally in both fixed income and equities markets would
not be unprecedented. A 20 percent decline in the value of the
dollar pushed the S&P 500 up nearly 38 percent in 1995, while
the U.S. bond market returned nearly 17 percent the same year
following one of the worst fixed-income bear markets in memory. 
    "If you look out at the broader picture, a lot of things are
going right," said Terri Spath, chief investment officer at
Sierra Investment Management, citing strong consumer confidence
and other economic indicators. "It's easy to make a bull case
because the economy is humming along just fine, but the market
is nervous because the headlines are really loud and no one
likes the unknown," she said. 
    Part of the yield curve inverted this week when yields on 5-
year Treasuries dropped below those on both the 2- and 3-year
securities, a signal that has preceded every U.S. recession in
recent memory by between 15 months and 2 years. Yet the long
delay between a yield curve inversion and a full recession can
still be a profitable time to invest, said Charles Lemonides,
founder of New York-based hedge fund ValueWorks. 
    "I don't buy the thesis that the economy is slowing, but I
do believe we are late in the cycle. We're going into a period
where investors are getting a little fooled by the headlines and
avoiding names that have excitement," he said. 
    As a result, Lemonides has increased his long exposure to
companies that have sold off, including battered semiconductor
maker Micron Technology Inc  MU.O , whose shares are down 37
percent over the last six months, and iPhone maker Apple Inc
 AAPL.O , whose shares are down nearly 23 percent over the last
3 months. At the same time, Lemonides has increased his short
position on defensive stocks like consumer staples companies
Clorox Co  CLX.N  and Church & Dwight Co Inc  CHD.N , which have
benefited from the market volatility. 
    Chad Oviatt, director of investment management at Huntington
National Bank, said his firm has been increasing its allocation
to U.S. large-cap stocks in anticipation that declining bond
buying by the European Central Bank and a resolution of
U.S.-China trade tensions will derail the rally in the dollar
this year. That should improve margins for U.S. exporters. 
    A Reuters poll of 60 currency analysts that ended Dec. 5
forecast that the dollar will be weaker against major currencies
next year, with most of the declines coming in the second half
of 2019.  LNN1YA3LW   
    Linda Bakhshian, a portfolio manager of several
value-oriented funds at Federated, said the recent stock market
volatility has made stocks, including Apple, JPMorgan Chase & Co
 JPM.N , Walmart Inc  WMT.N  and Microsoft Corp  MSFT.O  more
attractive at a time when the U.S. economy continues to look
stronger than either Europe's or China's. Low oil prices,
continued job growth and strong consumer spending will likely
prolong the U.S. economic expansion well past next year, she
said. 
    "If the markets were to close for the year today, people
would go into 2019 thinking that there are more opportunities
given the valuations," she said. 

 (Reporting by David Randall; editing by Jennifer Ablan and Dan
Grebler)
 ((David.Randall@thomsonreuters.com; +1-646-223-6607; Reuters
Messaging: david.randall.thomsonreuters.com@reuters.net))
 
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