Portfolio Manager Perspectives

Jeff Benjamin

Got guts? Consider financial stocks, says Innealta’s Buetow

Downward earnings revisions in sector could lead to cheap buys for those willing to take on some risk

Aug 30, 2010 @ 4:11 pm

By Jeff Benjamin

The next few rounds of corporate earnings reports are going to create some investment opportunities for anyone with the “guts to take on some risk,” according to Jeff Buetow, chief investment officer at Innealta Capital, a firm with $1.2 billion under management.

At the moment, Mr. Buetow admits he is quite comfortable “clipping coupons” in the fixed-income space, at least until the stock market’s volatility starts to calm down. But as the next earnings season gets under way, he is expecting some revised estimates to rattle the markets and create some attractive opportunities.

“I think earnings revisions are coming down and that will introduce the chance to deploy some risk capital — if you’ve got the guts,” he said.

The financial sector is one of the areas Mr. Buetow identified as likely to produce some downward revisions, which could lead to some overselling.

“Between the regulatory reform it is facing and the troubled real estate market, the financial sector has the potential for the most negative impact,” he said, adding that the materials, industrials and energy sectors all have the “potential to be whipsawed” during the next earnings season.

Globally, Mr. Buetow said the “reduced-demand shock” could also drive down some of the emerging markets, particularly export-driven markets in Asia.

“Earnings expectations will rein in and create some demand shock, and that kind of contagion can create opportunity,” he said. “I really think the equity markets will offer some opportunities before the end of the year.”

While Mr. Buetow believes there will be chances to make some money in the equity markets over the next few months, he is still generally bearish on stocks in the developed markets.

“Right now, I like gold, bonds and income generation as part of a deflation strategy,” he said. “The stock market will stay in this sideways pattern with lots of volatility, and that volatility is one of the biggest indicators of investor uncertainty, because folks just aren’t sure what’s going on.”

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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