David Ellison, a financial-sector fund manager at FBR in Boston, is so tired of getting blown up in financial stocks that he’s gone to 50% cash. He thinks bank managers and investors have no idea how bad the credit debacle will get, or, therefore, what all the crap on those balance sheets is worth.
This is a bold play by manager paid to pick stocks within a narrow sector. It could also be indicative of institutional capitulation…and, therefore, a sign of the bottom.
If Ellison is right, he’ll outperform like a champ. If he’s wrong, and the latest financial-stock rally is the real thing, he’ll be left in the dust (and plummet in the Morningstar rankings, see massive withdrawals, etc.) Either way, an interesting move by an expert who, for years, has done nothing but bet on financial stocks. Diya Gullapalli at the WSJ:
David Ellison, one of the most respected financial-stock managers in the mutual-fund industry, has had it. While he is pleased with the run-up in financials in recent days, he still sees signs of Armageddon in the sector.
“I don’t want to lose any more money,” said Mr. Ellison, an intense fellow who speaks about the stocks with barely concealed anger…
What also is unusual about Mr. Ellison is that he is one sector fund manager willing to be down on his own sector. Since these managers are locked into their sectors, be they tech, energy or banks, they are always optimistic. When times are good, sector managers say even better times are ahead. When times are bad, they say it is a great time to buy as the market overpenalizes the gems they can spot…
June was a turning point for him. Investors were becoming wary of dilutive capital raises. Foreign and private-equity investors also were turning their backs. This was a signal for him to sit tight and wait for the worst to pass.
Spend an hour with him nowadays, and one will come away convinced the financial-service industry’s glass isn’t just half empty — it is being shattered…
The timing of a sector turnaround is impossible to predict, said Mr. Ellison. His downbeat themes: No one has any idea how much worse things will get amid poisonous debt lurking inside financial outfits, and this is just the beginning of a complete regulatory overhaul needed to eventually fix the problems.
He likes that Wachovia Corp. has cut its dividend, but thinks too many financial executives remain in denial. Half an alcoholic’s problem, Mr. Ellison said, “is admitting he’s an alcoholic.”
Perhaps one of the worst offenses: the dearth of share repurchases by managers who “are so positive they have all this capital. Their words are saying one thing, but their actions are saying it isn’t true.”
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