(January 12, 2012) — Corporate high yield bonds and technology stocks will be the outperforming securities in 2012, according to MFS Chief Investment Strategist James Swanson.
The head strategist at $250 billion dollar MFS Investment Management outlined his picks for the coming year in London yesterday, amid continued turbulence in European markets.
Swanson said that since Christmas he had increased his holding of high yield debt, some of the riskiest credit bets available, as the market was pricing in an upcoming recession in the United States that he did not foresee.
He said the spread over US Treasuries – the yields of which were being forced lower by actions by the Federal Reserve and a perceived ‘safe haven’ status by investors – was attractive.
Technology companies would also play a part in creating outperformance, according to Swanson, as he said they were cheap and likely to grow in the immediate future and offer dividends to investors.
Swanson said: “In terms of valuation – private equity firms are paying up to 40 times book value to own a piece of these firms. On the public market they are trading at around 11 times. It’s remarkable mispricing.”
He added that companies were holding huge levels of cash on their balance sheet and the average age of technology equipment was reaching record highs. This indicated there might soon be a flurry of spending in this sector, he said.
Despite sitting at historical low valuation, Swanson said he was not tempted to start buying bank stocks.
He said: “When the Fed raises reserve rates again – and it has said this will not be until 2013 – they will become interesting, but at the moment, they are not earning through issuing loans so there is no excitement for an investor.”
The ever-changing economic conditions have also forced Swanson to change his investment style and change the securities in his portfolio more quickly.
He said: “Due to the market conditions, which at the moment change very rapidly, I have become nimbler with stock turnover. From rotating stocks four or five times year, I am now moving them six times a year – that’s an increase of 50%.”
At the end of December 2011, MFS managed $253 billion in institutional and retail global client assets.
<p>To contact the <em>aiCIO</em> editor of this story: Elizabeth Pfeuti at <a href='mailto:epfeuti@assetinternational.com'>epfeuti@assetinternational.com</a></p>