It\u2019s instructive to review the holdings of the smart PM\u2019s at leading mutual fund houses\u2014T Rowe Price, Fidelity, Gamco and Vanguard.\u00a0 We looked at the top 10 holdings of 18 big-cap growth-oriented funds.\u00a0 Some themes:<\/p>\n
We know that smart, very well-informed investors like the fundamentals of the 20 stocks highlighted.\u00a0 I own 7 of them.\u00a0 But you have to decide for yourself whether some of them (perhaps V, MA, DHR, GOOG, GILD) are too popular.\u00a0 I am rather surprised these funds don\u2019t own more industrial names, which benefit from creating a cleaner, more energy efficient infrastructure, as discussed in my February 13, 2014 post.<\/p>\n
Un-natural Selection Leaves Skeletons in the \u201cValue\u201d Closet<\/b><\/p>\n
A challenge for \u201cValue investors:\u201d because Mr. Market is smart, \u201ccheap\u201d stocks are often cheap for a reason.\u00a0 In what might be called a process of un<\/span>natural selection, some big, dominant companies are mismanaged for so long that their corporate DNA is corrupted to the point where they are very difficult to turn around.<\/p>\n Take GM and Citigroup–please.\u00a0 It turns out that GM knew about its defective ignitions for years without telling regulators; twelve motorists died.\u00a0\u00a0 On Friday GM did another giant recall.\u00a0 Not great for a tarnished brand in a hyper-competitive industry that is adding lots of new capacity. Meanwhile Citigroup managed to lose $400 million dealing with a shady bank in Mexico, and for the second time it failed its Fed stress test.\u00a0 I am guessing the Fed folks did not give Citi the benefit of the doubt, given its century-long history of egregious mismanagement and government bailouts. Recall that Citi lost Wachovia to Wells Fargo after<\/b> it thought it had a \u201cdone deal.\u201d (See my Dec. 16, 2012 post, \u201cChronic Crony Capitalist \u2013 Time for a Break-Up.\u201d)<\/p>\n Both GM and Citi were giant, sprawling, flat-footed industry \u201cincumbents\u201d that almost failed in 2008 and needed government assistance.\u00a0 They have probably had a hard time recruiting top talent.\u00a0 Their \u201clow valuations\u201d may look tempting, but after years of mismanagement the corporate genes may be more defective than investors appreciate.<\/p>\n More on China\u2014\u201cReform\u201d and \u201cDownside Risks to Growth\u201d are Perfectly Consistent<\/b><\/p>\n On Bloomberg Surveillance perennial China bull Stephen Roach, formerly of Morgan Stanley and now at Yale, sounded peeved when responding to China bears worried about a severe slowdown.\u00a0 They are missing the point, he explained.\u00a0 China is simply \u201creforming\u201d by shifting from an export and investment led economy to one driven by consumer spending and services (which are more labor intensive and so create more jobs).\u00a0 A crackdown on corruption, less support for State Owned Enterprises and a shift toward market discipline (i.e., more bankruptcies and bond defaults) are other elements of the reform agenda.<\/p>\n I get all that.\u00a0 But Mr. Roche admitted that reform might entail a GDP slowdown.\u00a0 To me, the downside risks are considerable; growth may fall far below the spurious 7-8% GDP numbers Street economists bandy about.\u00a0 Here is an economy moving from being driven by strong export growth, a government financed building boom, a housing boom, and huge credit expansion (to over 200% of GDP), to a more disciplined, market-oriented, consumer-led economy \u2013 at a time when housing prices are moderating and export markets are sluggish.\u00a0 It\u2019s hugely optimistic to assume this transition will be smooth and easy.<\/p>\n Copyright Thomas Doerflinger 2014.\u00a0 All Rights Reserved<\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" It\u2019s instructive to review the holdings of the smart PM\u2019s at leading mutual fund houses\u2014T Rowe Price, Fidelity, Gamco and Vanguard.\u00a0 We looked at the top 10 holdings of 18 big-cap growth-oriented funds.\u00a0 Some themes: A favorite holding is the … Continue reading