(Corrects fund performance in paragraph 19)
By David Randall
NEW YORK, April 13 Some of the actively managed
funds that have performed the best since the Nov. 8 presidential
election are switching from "Trump Trade" bets on financial and
infrastructure stocks into beaten-down sectors such as retail,
apparel or biotech.
The managers say those sectors now have a lot of upside
while a rally fueled by expectations Donald Trump's
administration will cut taxes and boost infrastructure spending
has run its course because of growing doubts the new
administration can deliver on those promises any time soon.
"We’re taking some money off the table,” said Scott
Goginsky, a co-portfolio manager of the $24.8 million Biondo
Focus Fund. The fund gained 25.6 percent between
Election Day and the end of March, according to Morningstar
Goginsky's fund, which counts sportswear brand Under Armour
Inc among its largest holdings, has been selling shares
of large-cap financial companies and buying "brands and
companies that still have pricing power when Amazon is taking
over everything," he said.
Shares of Under Armour lost 54 percent over the last 12
months in part because of increased competition with Nike
for shelf space at retailers.
Most of the portfolio managers that topped post-election
performance charts moved into financials and infrastructure
stocks before Nov. 8 and did so primarily because they looked
cheap, not because they thought Trump would win. In fact, only
few predicted the vote's outcome.
With the price-to-earnings ratio of the benchmark S&P 500
near the high end of its historical range, the broad market has
baked in deep tax cuts that look less likely after Trump's
attempt to pass a new healthcare bill shattered, fund managers
As a result, they are paring back their exposure to the
stock market as a whole and in some cases raising their cash
"I'm not a fan of the market at these levels," said Arnold
Schneider, portfolio manager of the $48.7 million Schneider
Small Cap Value fund. With a 28.2 percent gain since
Nov. 8 it is the top-performing actively managed equity fund
tracked by Morningstar over that time.
Schneider said only energy stocks and small-cap financial
services companies seemed to have some upside after falling 6.2
percent and 5 percent respectively this year.
"I think financial services are the best story in the
market," he said, given recent declines coincide with rising
interest rates that should help financial firms shore up their
Schneider counts oil and gas services company Weatherford
International PLC, crude oil producer Whiting Petroleum
Corp, and regional bank Regions Financial Corp
among his largest positions.
FADING 'TRUMP TRADE'
It appears that investors at large, not just the top
performers, are abandoning the ‘Trump Trade’ stocks.
Companies in the S&P 500 index with the highest effective
tax rates that would gain the most from the promised cuts have
given up all of their post-election gains, according to a
research note from Goldman Sachs published last week.
While Republican House Speaker Paul Ryan acknowledged last
week that Congress and the White House were not "on the same
page yet” on a tax package, the administration has tried to
assure of its commitment to a business-friendly agenda.
On Tuesday, Trump told a group of chief executives that his
administration was reducing regulations and revamping the Wall
Street reform law known as Dodd-Frank, which might be eliminated
and replaced with "something else."
White House economic adviser Gary Cohn on Friday said taxes
remained a top priority and the administration aimed to complete
a plan for tax code overhaul this year. He acknowledged, though,
it may not be ready until the fall.
One of the top-performing managers believes the "Trump
Trade" rally still has legs.
Graham Tanaka, whose $15.1 million Tanaka Growth
fund is up 17.8 percent since the election, said he expected
Trump to succeed in passing corporate tax cuts. That would push
the earnings of the S&P 500 companies up 10 to 15 percent,
justifying elevated valuation levels.
Tax cuts should spur more corporate and consumer spending on
technology, Tanaka argues, and has been raising Apple Inc
and Tesla Inc holdings. Tanaka is also moving
more money into shares of underperforming biotech firms, such as
ProMetic Life Sciences Inc and Ionis Pharmaceuticals
Inc. Ionis shares are down 19 percent for the year
after analysts expressed concerns about its drug pipeline.
"We think that this company has been beat up for the wrong
reasons and is one of the biggest innovators in the biotech
space," Tanaka said.
(Reporting by David Randall; Editing by Jennifer Ablan and