Reform Debate Makes Health Stocks Cheap
The $2.4 billion fund, which has earned four stars from Morningstar (MORN), has doubled during the past year, better than 72% of peers. The fund has gained 12% annually, on average, during the past decade, beating 85% of competing funds.
Welcome to TheStreet's Fund Manager Five Spot, where America's top mutual fund managers give their best stock picks in five fast and furious questions.
Are you a bull or bear?Posada: The most recent recession was a "balance sheet" recession. Despite low interest rates, debt levels are too high and credit activity is too low. Mortgage debt, financial and corporate sector, and commercial real estate debt all continue to be in restructuring mode, so balance sheet health still remains a goal for many entities. The government debt situation is even worse. There is no doubt that the market of 2009 was a bull market. Much of the data today show signs of strength, but we are comparing to an economy that literally fell off a cliff in late 2008 and early 2009. We do not think we can predict with any precision what will happen in 2010. The important question to ask as investors is what the risks are in our portfolios that could lead to losing capital, and are we being compensated for those risks. What is your favorite sector? Posada: The portfolio's largest relative overweightings as of December were in the health care and information technology sectors. Concerns over the health care reform debate in Washington, and the uncertainty surrounding the details of any final health care reform legislation, caused valuations in this sector to reach levels that we found attractive under any likely compromise legislation. The information technology sector is a quality sector with companies that have solid balance sheets, stable margins and rising estimate trends. These attributes offer a solid combination of growth potential and modest defensive characteristics, which are attractive as the economy regains its footing. What is your least favorite sector? Posada: While the financial sector is our largest absolute allocation, it is one of our largest relative underweightings. However, we have seen a number of small-cap banks that have the opportunity in this environment to grow market share, even through accretive acquisitions from the Federal Deposit Insurance Corp. We favor those with strong deposit franchises and regional strength or distinctive niche businesses.
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