The best September in decades means that some fund managers were likely left out in the cold, their performance trailing peers by a wide margin.JP Morgan believes that performance anxiety will lead to a surge in stock-buying through year-end.
Thomas J. Lee and Daniel McElligott, JPMorgan equity strategists who compiled the fund data, believe market-trailing fund managers will play a major role in year-end market dynamics. “In 1998,” they noted, “the S&P 500 rose 21% from Sept. 30 through year end, proving to be a particularly good year for equities as managers played catch up.”
To close the performance gap, fund managers eventually will be forced into aggressive stock-buying—provided future economic data don’t justify their scepticism.
Lee and McElligott assembled a list of 26 high-beta cyclical stocks that they think mutual-fund and hedge-fund managers might buy to play catch up. The stocks have an average 2011 price/earnings ratio of 14, a 2.0 beta, 7% revenue growth and 2011 earnings- per-share growth of 20%.
The list: Manpower (ticker: MAN), Ashland (ASH), DISH Network (DISH), Mohawk Industries (MHK), Precision Castparts (PCP), Royal Caribbean Cruises (RCL), Xerox (XRX), Whirlpool (WHR), Interpublic Group (IPG), Eastman Chemical (EMN), Western Union (WU), CBS (CBS), Ford Motor (F), Newell Rubbermaid (NWL), Textron (TXT), Starwood Hotels & Resorts Worldwide (HOT), Limited Brands, (LTD), Coach (COH), Allegheny Technologies (ATI), Harley-Davidson (HOG), Abercrombie & Fitch (ANF), Macy’s (M), Deere (DE), Rockwell Automation (ROK), Williams-Sonoma (WSM) and Las Vegas Sands (LVS).