John Hancock Classic Value fund: A Look At Top Holdings - STT, JPM, AIG

Of all the funds in the value-orientated fund universe, one of last year’s best performers was the John Hancock Classic Value fund , which reported performance of 40.5% during 2013. Year to date performance has slowed with the fund only reporting net asset value growth of 7.89%, underperforming the S&P 500 by 0.93%.

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Classic Value fund performance

Nevertheless, the Classic Value fund seeks long-term growth of capital, investing in good businesses that are trading at temporarily depressed prices, a strategy which has yielded results. Indeed, over the past five-years the fund’s Class A stock has returned an average 18.20% per annum, excluding the initial sales charge. Since launch 1996 the fund has returned an average of 8.36% per annum, marginally underperforming its benchmark, the Shares Russell 1000 Value Index ETF NYSEARCA:IWD over the same period, which returned 9.04% the S&P 500 produced an annualized return of 8.27%. However, if you include certain sales and management charges, the Classic Value fund has only returned 8.05% p.a. over its life, although if you factor in a 1% p.a. management fee for a Russell 1000 Value Index ETF, or tracker, performance would be about similar. The Classic Value Fund has an expense ratio of 1.22% p.a. on its Class A stock and 0.95% on Class I stock.

 

It’s obvious that the Classic Value fund is well run, so what’s the fund looking at right now?

Classic Value fund’s top holdings

Well, in what is becoming a fashionable trend amongst value investors, the Classic Value fund has taken interest in financials. Bank of America Corp ( BAC) , American International Group Inc ( AIG) , State Street Corporation ( STT) and Citigroup Inc ( C) all have a place in the fund’s top ten holdings. These financials make up around 12% of the fund.

In an interview with CNBC at the beginning of this month, Rich Pzena, founder of Pzena Investment Management and manager of the Classic Value fund, stated that in his belief, the most compelling risk-reward in the whole market came from such names as Goldman Sachs Group Inc ( GS) , JPMorgan Chase & Co. ( JPM) , Bank of America Corp ( BAC) and Citigroup Inc ( C).

This thesis was based on the sector’s return to attractive ROE levels as well as a more disciplined regulatory structure and capital cushion. Further, Pzena sees catalysts ahead, including a recovery in trading volume, settlement of litigation expenses and interest rate normalization. If these three factors combine, Citigroup in particular could see earnings per share hit $8.

Classic Value fund’s holdings in British oil and gas majors

Aside from financials, energy is the Classic Value fund’s second largest sector weighting. Around 9% of the fund invested in British oil and gas majors, Royal Dutch Shell plc ADR ( RDS).A ( RDS).B and BP plc ADR ( BP) ( BP). At 4.75% of the fund, Shell is the largest holding.

Shell has many attractive qualities. With its primary listing in London, a market which favors dividends over buybacks, Shell and its smaller peer, BP both offer dividend yields in the region of 5%. What’s more, Shell is restructuring its project portfolio, selling off $15bn of non-core assets. As a result of these asset sales, it’s believed that Shell will be the first oil major to become free cash flow positive within the next few years.

Continuing through the fund, the third largest holding is Hewlett-Packard Company ( HPQ), a restructuring play. Up 31% year-to-date and 160% since the beginning of 2013, Hewlett-Packard has made a staggering recovery over the past few years, although it appears as if the Classic Value Fund believes that the stock has further to run.

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The post John Hancock Classic Value fund: A Look At Top Holdings – STT, JPM, AIG appeared first on ValueWalk.

-By Rupert H

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