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Mutual Fund News

Financial services firms that look cheap

swon@globeandmail.com

WHAT ARE WE LOOKING FOR?

What the pros are buying.

The top holdings of most mutual funds are posted on a mutual fund company's website either monthly or quarterly. It's worth perusing them to get stock tips or to check out a fund.

Today, we look at Manulife Investment's AIC American Advantage at manulifemutualfunds.ca/en/home/index.html.

ABOUT THE FUND

The $33.7-million financial services equity fund has been co-managed since 2003 by Greg Placidi and Chris Lowe of Portland Investment Counsel Inc.

The fund gained 65.6 per cent for the year ended March 31. Over five years, however, it has posted an annualized loss of 6.7 per cent. It had a rough ride during the 2008 market meltdown and ensuing credit crisis.

Since late 2009, the fund, which has focused on U.S. financial stocks, has been diversifying by adding companies that also provide goods and services to the sector.

The managers, who look for growth stocks trading at reasonable prices, expect "a lot of volatility" in the financial sector partly because of the fallout from recent fraud allegations by U.S. regulators against investment bank Goldman Sachs Group Inc.

Long-term investors may look back two or three months from now, and possibly see this time as a "buying opportunity" among financials that have been dragged down by the headlines, they suggested.

WHAT DID WE FIND?

Goldman Sachs, one of the top 10, is in the red this year. Most stocks are still in positive territory.

"We still like Goldman," Mr. Placidi said. "Fitch Ratings [yesterday] basically reaffirmed Goldman's investment grade ratings ... I do not believe [the SEC civil fraud allegations] in any way undermines their core businesses or their ability to be profitable going forward."

Among the top holdings, insurer Prudential Financial Services Inc. has potential because it is "inexpensive" - trading at 1.1 times book value compared with its normalized price-to-book value of 1.6 to 1.8 times, he said. "They are going to benefit from increasing sales of their variable annuity products."

Ameriprise Financial Inc. is a hybrid between a life insurer and a wealth management company, Mr. Placidi said. This company is also cheap, trading at 1.3 times book value, and its recent acquisition of $165-billion (U.S.) of funds run by Columbia Management Group is turning out to be "a very accretive deal," he said.

Mr. Lowe likes JPMorgan Chase & Co., saying this financial services firm is now firing on two of its six cylinders. Those are the investment and commercial banking arms. Its asset management and securities businesses are "idling," while the retail banking and credit card businesses are "still stalled," he said.

"As the economy starts to stabilize and starts to show signs of improvement in the United States, we can expect those two businesses that have stalled to kick back into action," he said. JPMorgan may report about $3 a share this year, but that is expected to increase to between $5 and $6 a share with more normalized earnings that are probably going to come through in 2011 and 2012, he suggested.

*****

Top holdings of AIC American Advantage to March 31
Company nameSymbol$US Price (Apr. 16y)52-wk high $52-wk low $YTD % price chg% YieldP/EMarket cap ($-mil)Volume
Visa Inc.V-N93.8595.2654.257.30.529.779,3174,695,549
Goldman SachsGS-N160.7193.6113.38-4.80.87.482,613102,044,993
Hartford Financial ServicesHIG.PR.A-N25.5231.1125.2n/a0.00.09,774828,514
JP Morgan Chase & Co.JPM-N45.5548.228.899.30.420.5186,980121,206,568
Wells Fargo & Co.WFC-N32.5633.8916.1420.60.618.4166,47489,847,639
Franklin ResourcesBEN-N118.45121.955.7412.40.724.027,1551,380,415
Prudential Financial Inc.PRU-N62.8465.1821.6526.31.111.229,0324,410,502
MastercardMA-N259.5269.88149.341.40.223.333,6751,149,560
Ameriprise FinancialAMP-N47.1248.421.621.41.416.312,0162,397,427
MetlifeMET-N45.3746.5523.7528.41.615.837,1497,971,477
Source: Globe Investor

© 2007 The Globe and Mail. All rights reserved.

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