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Battered Retail, Biotech Shares Are Being Chosen By 'Trump Trade' Winners

Battered Retail, Biotech Shares Are Being Chosen By 'Trump Trade' Winners
Beaten-down sectors such as retail, apparel or biotech are being chosen in place of "Trump Trade" bets on financial and infrastructure stocks by some of the actively managed funds that have performed the best since the Nov. 8 presidential election.
Due to growing doubts the new administration can deliver on those promises any time soon, rally fueled by expectations Donald Trump's administration will cut taxes and boost infrastructure spending has run its course and the managers say those sectors now being invested in have a lot of upside.
"We’re taking some money off the table,” said Scott Goginsky, a co-portfolio manager of the $24.8 million Biondo Focus Fund. The fund gained 25.6 percent between Election Day and the end of March, according to Morningstar data.
He said that shares of large-cap financial companies are being sold and "brands and companies that still have pricing power when Amazon is taking over everything," are being bought by Goginsky's fund, which counts sportswear brand Under Armour Inc among its largest holdings.
In part because of increased competition with Nike for shelf space at retailers, shares of Under Armour lost 54 percent over the last 12 months.
Financials and infrastructure stocks looked cheap, not because the portfolio manager thought Trump would win, were the ones that most of them that topped post-election performance charts had moved into before Nov. 8.
Fund managers say that the broad market has baked in deep tax cuts that look less likely after Trump's attempt to pass a new healthcare bill shattered with the price-to-earnings ratio of the benchmark S&P 500 near the high end of its historical range.
"I'm not a fan of the market at these levels," said Arnold Schneider, portfolio manager of the $48.7 million Schneider Small Cap Value fund. It is the top-performing actively managed equity fund tracked by Morningstar over that time with a 28.2 percent gain since Nov. 8.
After falling 6.2 percent and 5 percent respectively this year, only energy stocks and small-cap financial services companies seemed to have some upside, Schneider said.
Given recent declines coincide with rising interest rates that should help financial firms shore up their margins, he said "I think financial services are the best story in the market."
Among his largest positions, crude oil producer Whiting Petroleum Corp, regional bank Regions Financial Corp and oil and gas services company Weatherford International PLC are included by Schneider.
Apparently, the ‘Trump Trade’ stocks are being abandoned by investors at large, not just the top performers.
According to a research note from Goldman Sachs published last week, all of their post-election gains have been given up by companies in the S&P 500 index with the highest effective tax rates that would gain the most from the promised cuts.
The US administration has tried to assure of its commitment to a business-friendly agenda even while Republican House Speaker Paul Ryan acknowledged last week that on a tax package, Congress and the White House were not "on the same page yet”.

Christopher J. Mitchell

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