Portfolio Manager Perspectives

Jeff Benjamin

How to play the new volatility

Stick to stock-picking, not reading macro-economic tea-leaves, says MFS' Fischman; gems to be found in health care, tech sectors

May 10, 2010 @ 12:10 pm

By Jeff Benjamin

There's a rollercoaster on Wall Street right now. And it's making retail investors and financial advisers downright queasy. But to one money manager, short-term stock market volatility represents pure opportunity.

Eric Fischman, manager of the $2.2 billion MFS Growth Fund Ticker:(MFEGX), sees money-making potential in the recent market drama, which includes the near 1,000 point plunge – and partial recovery — of the Dow Jones Industrial Average on Thursday. The thrills continued today, as the European Union's sovereign debt rescue plan lifted global stock prices. In the U.S., the Standard & Poor's 500 Index surged, ending up a whopping 46 points, or 4.2%, by the close of trading.

“I do a lot of adding to, and trimming of, positions based on short-term movements, because that's how I take advantage of near-term market volatility,” said Mr. Fischman, who has managed the fund for MFS Investment Management since 2004.

In terms of sector weightings, the fund stays within 5 percentage points of its benchmark, the Russell 1000 Growth Index, which translates into: “100% of the fund's performance since I took over has been from stock picking,” he said.

By sticking to the benchmark weightings, Mr. Fischman is not making macro economic forecasts.

“All the stock picking in the world won't get you out of a bad macro call,” he said. “That's why I'm not making macro calls or sector bets. I just pick stocks.”

The multicap fund holds between 100 and 130 stocks, 70% of which have market capitalizations of more than $10 billion.

“Earnings drive stock prices, and I'm willing to look anywhere for earnings,” he said.

The basic analysis starts with considering a company's earnings outlook over the next three to five years, with an emphasis on how fast and for how long those earnings will grow.

Lately he has been finding opportunities in the technology, financial and health care sectors.

“There's a lot of tech spending based on enterprise spending, and that's probably a good place to be right now,” he said. “As the economy improves, we're going to see more technology spending.”

The fund's three largest positions are tech sector stocks: Apple Inc. Ticker:(APPL), Cisco Systems Inc. Ticker:(CSCO) and Google Inc. Ticker:(GOOG).

In the financial sector, where Mr. Fischman believes that “some kind of reform is inevitable,” he likes CME Group Inc. Ticker:(CME), which operates various futures and options exchanges.

“Financial reform conceivably helps CME,” he said. “Similar to health care reform, we are moving away from areas likely to suffer from the new laws.”

In the health care space, where Mr. Fischman believes that the law will continue to evolve, he owns Teva Pharmaceutical Industries Ltd. Ticker:(TEVA), the world's largest maker of generic drugs.

Meanwhile, a number of economists and analysts warned today that the EU bailout plan might fail to prop up Greece or the floundering Euro. Stay tuned: it looks like the wild ride isn't over just yet.

Portfolio Manager Perspectives are regular interviews with some of the most respected and influential fund managers in the investment industry. For more information, please visit InvestmentNews.com/pmperspectives.

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