FUNDVIEW-US equities to show growth despite systemic risks

* William Blair Growth sees 10-20 pct upside

* Underweight on consumer staples, healthcare, utilities

* Overweight on technology, industrials, materials

* Systemic problems still not in full public view

* Says banking not a particularly growth sector

By Ratul Ray Chaudhuri

BANGALORE, Dec 23 (Reuters) - U.S. equity markets should notch up decent returns in 2010 on top of this year's massive valuation rebound, a fund manager said, even though systemic risks may still exist as is evident from the Dubai debacle.

"We are not really super risk-embracing at this point," said David Fording, who co-manages the U.S.-focused William Blair Growth Fund (WBGSX.O). "There are problems out there that are not necessarily completely in the public view."

"You see that with Dubai, you see that with the almost failure of an Austrian bank that was rescued by the (European Central Bank)."

Austria took over Hypo Group Alpe Adria on Dec. 14 in a rescue the European Central Bank helped broker to avoid a collapse. [ID:nLDE5BD00D]

Fording sees inflation as another risk for markets that may force central banks to raise interest rates and sap liquidity.

"Equity markets can churn higher to the tune of 10 or 15, maybe 20 percent at best from here," said Fording, who is underweight on the defensive areas of the market like consumer staples, healthcare and utilities and overweight on technology, industrials and materials.

"So that way you might say we have a procyclical tilt ... I think the macroeconomic data is suggestive of continued growth in GDP here in the U.S., but even more importantly global growth."

The fund with about $411 million in assets is up 38.76 percent so far this year, while its benchmark, the Russell 3000 Growth Index .RAG, is up 34.57 percent in the same period.

CHERRY PICKING

"We are stock pickers first, we are not top-down sector rotators," said Fording, who has Hewlett-Packard Co (HPQ.N), Microsoft Corp (MSFT.O), Apple Inc (AAPL.O), Google Inc (GOOG.O) and Qualcomm Inc (QCOM.O) among his top holdings.

Fording sees a substantial personal-computer cycle ahead, with a rebound in both enterprise and consumer spending, and expects HP and Microsoft to be huge beneficiaries.

"HP is the master of squeezing costs out of production," said Fording, who likes the company's strategy of attacking the networking market -- where Cisco Systems Inc (CSCO.O) dominates -- with lower-cost products.

"They can price more aggressively than Cisco because Cisco is defending 60 percent gross margins."

"Search is definitely taking market share from overall ad spending and Google has continued to gain share within search queries," Fording said.

In contrast to large-cap names, Fording is bullish on the semiconductor company Cavium Networks (CAVM.O), which designs chips for networking equipment and counts Cisco, Juniper Networks (JNPR.N), Alcatel Lucent (ALUA.PA) and others as customers.

Fording recently invested in outsourcing company Genpact (G.N), which was spun out of General Electric (GE.N) in 2005, even though concerns exist about the timing of a pickup in spending on business process outsourcing and the company's huge concentration of revenue from GE. "We think the company is growing very healthy outside of GE."

He also has high confidence in for-profit education company DeVry Inc (DV.N) due to its financial matrix, quality of management and students, even though the stock has underperformed this year.

Concerns that the Obama administration is interested in clipping the wings of the for-profit education space "are completely overstated," Fording said.

The fund manager does not have any exposure to banks or broker dealers.

"We don't think banking is a particularly growth sector ... and the highest-quality names in banking are fully valued," said Fording, whose largest financial holding is asset manager Affiliated Managers Group Inc (AMG.N), followed by discount broker Charles Schwab Corp SCHW.O.

Fording recently lowered his exposure to biotechnology company Gilead Sciences Inc (GILD.O) due to pipeline issues and booked profits on oil and gas company Apache Corp (APA.N).

PepsiCo Inc (PEP.N) and McDonald's Corp (MCD.N) are among his top picks in the consumer space. (Reporting by Ratul Ray Chaudhuri in Bangalore; Editing by Unnikrishnan Nair)