Fund managers dip their toes back into the market

Date: Monday, August 20, 2007
Author: Laurence Fletcher, UK. reuters.com

LONDON (Reuters) - Fund managers and directors of hedge fund firms have started buying back into the stock market during the current volatility because they believe many stocks have become too cheap.

"We're getting back into territory where people are beginning to think the market is attractive," Julian Chillingworth, chief investment officer at Rathbone Unit Trust Management, told Reuters on Friday.

"In times like this, people over-react on the downside. There is definitely a fear factor at the moment ... We've put our toe in the water, into some FTSE 250 stocks where people have been trying to get liquidity and have taken a low price."

In recent weeks global stock and credit markets have been shaken by worries a surge in defaults in the U.S. subprime sector -- which lends to risky borrowers -- will lead to a wider financial crisis.

The FTSE 100 (.FTSE: Quote, Profile, Research) index, which last month rose above 6,700, fell below 5,900 on Thursday, before rebounding above 6,100 during trading on Friday.

Chillingworth said property stocks on large discounts, such as British Land (BLND.L: Quote, Profile, Research) and Land Securities (LAND.L: Quote, Profile, Research), and some resources stocks look attractive, while he is also eyeing battered financial stocks.

"Financials, we're looking at very closely. But banking is not the most transparent sector in the world, and we'd like to see some stability."

James Thomson, who runs the Rathbone Global Opportunities fund, told Reuters on Friday he had invested $1 million (500,000 pounds) of his $4 million cash reserves on Thursday and plans to invest a further $1 million on Friday.

Meanwhile, Bill Mott, manager of the 208 million-pound PSigma Income fund and former star Credit Suisse Income manager, has been committing a "significant" proportion of new cash inflows into banks and life insurance firms.

"Throughout August we have been extremely busy putting in place what we believe to be some rewarding investments at what appear to us to be stunningly attractive prices," he said.

"It has been many years since I have placed as many trades in such a short period of time."

According to current estimates, the FTSE 100 index is on a price/earnings ratio of 11.2 times 2008 forecast earnings, although Chillingworth said forecasts may have to be adjusted.

"The Footsie is probably on a forward multiple of around 13-14 times ... It's not hugely expensive," he said.

"CHEAPEST"

Fund managers who took evasive action last month have also started committing cash again.

Peter Lucas, global strategist at Ashburton with around 1 billion pounds in assets, has sold a number of "balancing items" -- intended to move inversely to equity markets -- such as long positions on the CBOE Volatility index (.VIX: Quote, Profile, Research), call options on the yen and longer-dated bonds, which he put on last month before the market fall.

"I don't think there is a huge amount of downside from here ... Equities are the cheapest of the major asset classes, unless you believe a recession is around the corner. I'm generally inclined to buy the dip".

John Pennink, manager of the British Empire Securities & General (BTEM.L: Quote, Profile, Research) investment trust, sold his position in the giant Alliance Trust (ATST.L: Quote, Profile, Research) and built up cash to around 14 percent at the end of July, but has recently been putting cash to work in the market.

"We have been increasing exposure when prices are attractive in many of our current holdings across all the sectors," he told Reuters.

Directors of hedge fund firms have also been investing money in their firms in recent weeks. Man Group's (EMG.L: Quote, Profile, Research) deputy chairman Stanley Fink, who stood down as chief executive (CEO.L: Quote, Profile, Research) in March, spent 451,000 pounds on shares on Thursday, while last Friday current CEO Peter Clarke raised his personal stake for a third time in a fortnight. Directors of RAB Capital (RAB.L: Quote, Profile, Research) have also been buying shares in their firm.