By David Randall
NEW YORK, June 9 When the European Central Bank
put its economy-boosting stimulus plan into high gear last week,
it sent European stock prices to six-year highs. But mutual fund
managers who might be expected to like that are instead voicing
a new worry: The policy leaves them without enough reasonably
priced stocks to buy.
"For those of us that are valuation-conscious, it will be
tougher and tougher to find attractive stocks, period. I don't
know how else to put it," said Matthew Kaufler, the lead
portfolio manager of the $1 billion Federated Clover Value fund
The ECB said it would charge banks to park funds overnight,
effectively creating a negative interest rate in an effort to
revive the euro zone economy by nudging banks to lend money to
small and medium-sized businesses, rather than hoard it.
That should push stock valuations higher
worldwide, as investors pull their money out of low-yielding
European bonds and send it toward shares ranging from
dividend-paying U.S. companies like PepsiCo Inc to
European automakers that could see a benefit from Europe's easy
money policies, fund managers said.
In Europe, a year-to-date rally of 6 percent has sent the
price-to-earnings ratio of the Stoxx Europe 600 to 17.2, on the
high end of its historical average. In the United States,
meanwhile, the P/E of the benchmark S&P 500 has risen to 18.6,
more than a full point higher than the 2007 peak of 17.5 that
preceded the 2008 financial crisis, according to Bespoke
Connor Muldoon, a portfolio manager of the $6.2 billion
Causeway International Value fund, has been moving
more of his portfolio into cyclical European companies such as
French automobile maker Peugeot SA in anticipation
that low interest rates will spur more sales.
Yet at the same time, he's holding on to more companies in
his portfolio as other attractively priced options dry up. The
portfolio now holds approximately 65 stocks, a jump of nearly 20
percent from the number of companies the fund held during the
2010 debt crisis.
"We're finding it better to just hold on to the businesses
that we know and invested in, even if there is less upside than
what we had previously," Muldoon said.
Mark Freeman, chief investment officer of Westwood Holdings
Group, who oversees $19 billion in assets, has been
increasing his position in companies including Qualcomm Inc
and pharmaceutical and medical device maker Covidien
PLC in anticipation that negative interest rates in
Europe will make dividend-paying U.S. stocks even more
expensive. He is eschewing traditional so-called dividend
aristocrats - those companies that have raised their payouts
annually for 20 or more years - and instead choosing companies
that are growing both dividends and revenues, even if their
payouts alone are relatively small.
"The most expensive part of the market is pure yield, and
this is an attractive alternative to that," he said.
(Reporting by David Randall; Editing by Jonathan Oatis)