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US equity market has bottomed out, say fund managers

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The US equity market has bottomed out, according to a number of fund managers interviewed by Standard & Poor’s Fund Services.

The US equity market has bottomed out, according to a number of fund managers interviewed by Standard & Poor’s Fund Services.

‘The teams at two S&P A rated funds, DWS Invest US Equities and WP Stewart Holdings Fund, both believe that the market will be higher in a year’s time,’ says S&P Fund Services lead analyst Alison Cratchley.

However, she says they expect volatility to continue, making good stock selection essential as the market becomes more driven by fundamentals.

DWS has already moved to a fully invested position, taking the view that the bottom of the US equity market has now passed. Its preferred sectors are technology, consumer discretionary, energy and materials.

DWS also believes now is the right time to be looking at turnaround situations but it is avoiding healthcare and consumer staples in the belief that these stocks will be used as sources of funds for higher beta stocks.

At WP Stewart, the team believes high quality, growing businesses will outperform. Its portfolio currently offers nil earnings growth for 2009, as against a 20 per cent decline for the market. For the next three to five years, average earnings growth is estimated at 13 per cent a year. The fund sells at about 15 times estimated forward 12-month earnings and about 7.5 to eight times projected earnings five years out.

‘Continued volatility will dictate a higher than normal level of trading activity,’ says S&P Fund Services’ Cratchley, quoting the teams at the S&P AA rated Calamos Growth Fund and the S&P A rated Delaware US Large-Cap Growth Equity Fund as saying that they will tend to sell earlier than in previous market cycles.

Both teams favour companies that can finance their own growth without recourse to the capital markets – an emphasis that accounts for overweight positions in technology.

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