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S&P Capital IQ


02/23/17 05:00:19 PM


CFRA thinks investors can benefit from a regular review of their holdings in actively managed mutual funds, as fundamentals and valuation opportunities can change quarter to quarter. Looking at the stakes at a large asset manager such as Capital Research and Management, the manager of the popular American Funds, can provide compelling data that could lead to more informed investment decisions. (For a similar take on Fidelity's recent portfolio actions, please see our Trends & Ideas article, "What Has Fidelity Been Buying and Selling?" published on February 14, 2017.

Relative to Fidelity, Capital Research & Management had more exposure to consumer staples (9% vs. 7%) and energy stocks (10% vs. 6%) and less exposure to information technology 18% vs. 26%) at the end of 2016.

The share count for Chevron (CVX 110 ***) rose 4.8% to 70 million at the end of the fourth quarter, according to the Capital IQ database and using the December 31, 2016 13-F filing. The firm has continued to build a position in the integrated oil & gas company throughout 2016. Meanwhile, the local share count of peer Royal Dutch Shell increased 7.3% to 96 million, the highest quarter end level in a year; a smaller increase also occurred in energy equipment & services Schlumberger (SLB 81 ****).

Within consumer staples, household products firm Procter & Gamble (PG 91 *****) share count declined 15% and is at the lowest quarter-end level since March 2015. Soft drinks and tobacco companies Coca-Cola (KO 41 ****) and Philip Morris International (PM 104 ***) exposure also fell 9.2% and 4.1% to 234 million and 157 million shares, respectively.

Yet, fund managers found some fourth quarter bright spots in the sector, including food retailer Kroger (KR 34 ****), with a 20% increase in shares held; the share count was cut by 23% in the third quarter.

Within technology, stakes in Apple (AAPL 136 *****), Broadcom (AVGO 210 *****) and Microsoft (MSFT 65 ***) were added to, while Intel (INTC 36 ****) was trimmed.

Other large positions that were pared back in the fourth quarter included (AMZN 845 ****) and Home Depot (HD 143 ****).

Still, and not surprisingly, the aforementioned positions were maintained at significant levels of ownership within some of the largest American Funds offerings. For example, American Funds Fundamental Investors (ANCFX 57 ****) has top-10 positions in AMZN, AVGO, HD, MSFT and SLB. ANCFX has generated an above-average three-year total return relative to its large-cap core peers, but has in-line volatility, helping it generate a 0.99 Sharpe ratio (0.83 for large-cap core peers). The mutual fund earns positive ranking inputs in CFRA's proprietary methodology for its risk considerations.

Fellow large-cap core offering American Funds Washington Mutual Investors (AWSHX 43 ****) has a relatively strong 0.96 Sharpe ratio and below-average volatility. It also holds stakes in HD, MSFT and SLB within its top-10, and also Royal Dutch Shell.

CFRA has research and reports with rankings on approximately 7,800 domestic equity mutual funds based on a combination of holdings-level analysis and mutual fund attributes. Reports on them as well as the aforementioned stocks can be found on MarketScope Advisor.


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