Finding Solace In Equities

Between Europe, the presidential elections and the fiscal cliff, investors may be more eager to keep their cash safely tucked away under their mattress and avoid the headaches and potential losses of a volatile market.

But they may be missing out on some promising and steady returns in the equity market in the meanwhile, according to portfolio managers at JPMorgan Asset Management.

“No matter what happens in Europe; no matter who wins the election, or what happens to the fiscal cliff, investing in quality companies that are positioned for long term success is truly the best roadmap for achieving their financial goals,” Mariana Bernunzo Connolly, executive director and head of the client portfolio management team for U.S. equity value-based strategies at JPMorgan, said in a webcast.

In fact, it may be some of the hardest-hit sectors, such as consumer discretionary and financial services, that may be the best place to weather the ups and downs of the markets, said Jonathan Simon, a managing director and portfolio manager at JPMorgan with over 32 years of industry experience. 

Simon, whose Value Advantage Fund is up 32% over the past 12 months and who described himself as “naturally conservative,” said that nearly one-third of his portfolio is in financial services.

“I’m focusing on high-quality names,” he explained. “There’s no question that the company management who are bold enough to take advantage of the downturn and make great acquisitions are the ones who have led our performance.”

To that end, Simon leans toward companies such as Wells Fargo for its 2009 acquisition of Wachovia; as well as M&T Bank, which bought both Wilmington Trust and Hudson City Savings Bank in separate merger deals, and which he expects will pay out dividends over time. Simon gave a nod to AIG as well, saying that its underlying casualty insurance business may be more valuable once it is fully divested of the federal government’s 16% ownership.

“To me, there’s still a lot of upside to depressed names,” Simon said.

In addition, the consumer discretionary sector can bring good cash flows despite skepticism about consumer confidence and spending, Simon added. “The US consumer has propensity to spend and occasionally look too stretched from a balance sheet standpoint, but that’s not how we think about it,” he said. “We think in terms of whether these companies are offering consumer particularly good value and can continue to generate good cash flows even in weak consumer spending environments.”

His Value Advantage Fund has gotten a boost from well-established retail names such as Williams Sonoma and Bed Bath & Beyond, both of which cater to home and kitchen needs.  “They’re not as cheap as they used to be but are still an overweight position for the fund,” Simon said.