Portfolio Manager Perspectives

Jeff Benjamin

Time is right for cyclical stocks, says First American's Chalupnik

Cost-cutting has buffed up companies in financial and tech sectors; 'tremendous operating leverage'

Aug 6, 2010 @ 7:53 am

By Jeff Benjamin

The carnage wrought by the stock market collapse more than a year ago has left a lot of cyclical-sector stocks still looking like great values, according to David Chalupnik, head of equities at First American Funds, which has $90 billion under management.

Corporate cost-cutting during the worst part of the downturn has provided companies in the financial, consumer discretionary, and technology sectors with “tremendous operating leverage,” added Mr. Chalupnik, who manages the $130 million First American Large Cap Select Fund Ticker:(FLRAX).

“Right now in the fund we're more cyclical-weighted than the benchmark [S&P 500],” he said.

Another theme in the fund of about 60 stocks is to buy high-quality, second-tier smaller companies that were “beaten up in the downturn,” he said.

A couple of examples include Xerox Corp. Ticker:(XRX), and Brunswick Corp. Ticker:(BC).

The fund's third major theme is to buy companies that remain attractively valued relative to their respective history and to the overall market.

“A lot of the share price dislocation still hasn't caught up from the downturn,” Mr. Chalupnik said.

The fund is managed to be a large-cap core fund, but value stocks have started to become a more common part of the portfolio.

“We do now own a bit of lower quality stocks,” he said. “But that's where the opportunity is.”

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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