Mutual fund managers of global portfolios are exiting developed foreign markets in favor of U.S. stocks, according to MarketWatch.
Of the 131 U.S.-based stocks with global investment mandates, 40% have holdings in the U.S., up slightly from one year ago, according to Kai Wiecking, an analyst with Chicago-based fund-tracker, Morningstar. This represents a shift in the focus of managers who have concentrated on European stocks especially.
“We’re seeing real movement for the fist time in years,” he said. He expects the trend to continue in 2007.
Ned Notzon, who oversees allocation at the T. Rowe Price Spectrum Growth Fund, noted that although European companies still offer more room for improvement in productivity, in the next decade, his fund will stay more neutral in the short term.
Furthermore, Notzon said he is leaning heavily to large-cap and growth stocks.
ING Investment Management Senior Portfolio Manager Martin Jansen expects European markets to slow more than U.S. markets in the next 12 months, with both averaging 10% earning growth.
And while last year, European stocks traded at as much as a 25% discount to their domestic counterparts, the gap has narrowed significantly.
Developing economies will have less of a slowdown, said Jansen.
Japan offers another opportunity with earnings projected as high as 14%, said Jansen, crediting a weakened yen, and relatively inexpensive exports.
Morningstar data also shows that the average global fund now has 72% in large-cap funds, 20% in mid-caps and only 8% in small-caps, reversing the small-cap-heavy orientation of a few years back.
Some companies, however, have remained true to their original international mix. “We’re continuing to substantially overweight in international stocks,” said Jason Holzer, co-chairman of the AIM Global Aggressive Growth Funds.
Because Europe has more people than the U.S. and an aggregate gross domestic product that is larger than that of the U.S., Holzer sees American stocks as expensive still.
In Europe, he said, “You can gain exposure at some world-class companies at much cheaper prices and still invest with developed economies,” he said.