All three managers agreed that the broad universe of domestic equities [shares] is fairly priced, and that the valuation gaps that had existed between high- and low-quality stocks [shares], as well as between small and large caps, have been filled. The fixed-income market doesn't offer bargai
ns, either, said David Winters. Winters, who has the broadest mandate of the panelists, is holding large cash stakes in his funds.
Share picks
Bob Smith hasn't lost hope, either. The growth manager said he's found picks by moving up the market-cap ladder, upgrading the quality of his fund's holdings, and continuing to focus on value. He likes steady growers Microsoft and Citigroup. Both stocks are cheaply priced, he noted, especially when compared with lower-quality industry peers. David Winters was less sanguine on domestic equities, however, arguing that better opportunities exist overseas, where more attractive valuations and less efficient markets expose prospects. The manager said he recently scooped up shares of British American Tobacco, citing its generous dividend yield.
Talk then turned to how to properly assess corporate management teams. Intelligent allocation of capital, reasonable compensation structures, efficient information systems, and disciplined accounting methods were all mentioned as key factors. Winters and Nygren expressed their willingness to play a more-activist role to steer company management back on course if management shirks its responsibility to shareholders.
When asked to comment on the temptation to join the hedge fund arena, all three panelists expressed their contentment to stand pat and run mutual fund assets. They all championed their alignment with shareholders by professing their heavy stakes in their own funds. Nygren received spontaneous applause from attendees after he mentioned how rewarding he finds it to serve small investors. "I like managing an asset class that can directly improve ordinary people's quality of life," the manager said.
This article originally appeared on www.morningstar.com on June 25th.
