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NEW YORK, July 19 (Reuters) – The US Federal Reserve's expected interest rate cut over the course of the month will push US money managers looking for returns at attractive prices even further .
While nearly half of the companies in the S & P 500 Index have a higher dividend yield than the roughly 2.04% offered by the 10-year benchmark Treasury Bonds, the managers of Value-minded funds are reluctant to buy stocks of dividend-rich utility companies or the real estate sector because their valuations are well above historical norms. Fund managers say they rather get returns in areas ranging from energy to technology.
"You can not just throw a dart, because some of these typical safe havens are trading at much higher market multiples than they usually do," said Gary Bradshaw, a portfolio manager at Hodges Income Fund. Blue Chip Equity of $ 25 million. "It's hard for me to buy a utility company when I could buy a company like Home Depot," which increased its dividend by 32% in March and will likely benefit from a rebound in the market. housing, he said.
Home Depot Inc. shares returned 2.52% and were up almost 25% as of December 31st, at market close on Thursday, compared with a gain of about 18% for the benchmark. the S & P 500, over the same period. The S & P 500 as a whole yields 2.38%.
With negative bond yields in Japan and Europe, the Fed will likely keep US interest rates low "for a very long time," said Bradshaw, giving a premium to companies that can increase dividends and maintain returns.
Other fund managers are moving away from the bond market looking for equity income, which seems to offer more sustainable sources of return.
"Clearly, stocks are paying more than bonds here and that's the game everyone needs to play," said David Clott, a co-portfolio manager of the $ 1.3 billion Westwood Income Opportunity Fund. . "Low yields in the fixed income market make you want to take risks elsewhere."
As a result, Clott reduced its exposure to treasury bonds and added shares of companies such as AT & T Inc, which offers a return of 6.13% and a negative price / earnings ratio of 12.9. The company 's shares, which plans to launch a streaming service next year to compete with Netflix Inc, have increased by 16% for the year' s total.
Robert Leininger, portfolio manager of the Gabelli Dividend closed-end fund & Income Trust, said he had beefed up his stake in companies such as the Molson Coors Brewing Co Liquor Company and the Schlumberger Energy giant NV, whose share price has underperformed this year. . Molson Coors, for example, has seen a 3.8% drop since the beginning of the year and a dividend yield of 3.02%, while Schlumberger is up 5.5% over the same period. period and a yield of 5.18%.
"This is a market that has focused on growth investments for almost a decade now," said Leininger, unduly punishing otherwise strong companies that may have temporary difficulties.
Michael Barclay, a portfolio manager of the Columbia Dividend Income Fund, with a capital of $ 15.1 billion, said he was focusing on revenue generation in the technology sector because its high growth rates would allow companies to increase their dividends over time.
While Cisco Systems, Microsoft Corp, and Apple Inc. are among the largest holdings in its fund, Barclay has also more recently turned to semiconductor companies, which are isolated by strong barriers to entry and have strong feeds. high cash available. Dividend sectors such as consumer goods have increased their influence.
"At this point in the cycle, it's really important to focus on the balance sheet and to be sure that a dividend will not be reduced," he said. (Report by David Randall, edited by Jennifer Ablan and Leslie Adler)
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