Small-cap stocks have been favored in recent years, but now a turnaround is happening and mutual-fund managers investing in Europe are stating they are finding large-cap stocks more attractive than small-caps, according to Dow Jones.U.S. counterparts are also relating the same thing and the reasons are quite similar.
While the subprime lending and general credit-market concerns are spreading through much of the world’s developed economies, more fund managers are turning to some of Europe’s well-established blue-chip companies for relief.
“Large-caps are big, safe businesses that are coming more into favor as market volatility increases around the globe,” said Karen Olney, head of European equity strategy at Merrill Lynch in London.
The research unit recent survey showed that 83% of some 181 global fund managers are favoring European large caps. That’s up from 54% earlier this year.
Olney also sees the trend even more in mega caps. “We’re seeing a valuation gap in the largest of the European large caps,” she said.
Most managers are aware of the large-versus small-cap shift, Olney commented. However, not until recently were many stock pros pressed to make a choice as smaller, more speculative fare led market returns since 2003, she said.
“In the last several years, almost everyone's been a winner,” Olney said. “But as more volatility enters global markets, it's time to be more discriminating in your picks. We really see large caps outperforming in Europe over the next 12 months.”
The bigger, the better, said Hayes Miller, a global fund manager at Baring Asset Management. He estimate that European companies with a market capitalization sizes of $50 billion or more are trading at an average discount of around 13% to smaller large caps. “The valuation shift towards mega-caps is so similar now in the U.S. and Europe that there’s really no distinction,” Miller said.
“Many smaller companies are still doing well overseas,” said Komal Sri-Kumar, chief global strategist at TCW Group Inc. “But some key economies in Europe are starting to slow. That's why larger companies with more staying power appear to be the best-positioned going forward.”
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