Markets are nearing the end of a tough week, with one more hurdle to go after Fed Chairman Jerome Powell set investors straight on his willingness to go to the mat on inflation. Next up is Friday’s nonfarm payrolls, though weekly jobless claims are due this morning and equity futures are struggling.
If 2023 turns into the year of the stock picker as some believe it will, Alliance Trust PLC ATST, -0.79%, a closed-end U.K. fund that has paid dividends for 56 years straight, may be in a sweet spot. The fund combines top stock picks from the world’s best active managers into one portfolio aimed at beating its benchmarks.
Alliance Trust’s net asset value total return fell 7.1% in 2022, edging past its MSCI All Country World Index benchmark, which lost 8.1% in a year where the S&P 500 SPX, +0.14% fell 19% against a war and inflationary backdrop, and commodities outperformed.
Chairman Gregor Stewart said a “balanced exposure to countries, sectors, and styles,” and returns that leaned on stockpicking helped it lessen the pain of 2022. In our call of the day, we take a look at some stock picks the fund is counting on to steer through 2023.
Stewart says they want companies that can “survive, and even thrive, in the current high inflation environment, as well as many companies who are financially strong enough to weather a recession.”
In the fund’s annual report on Thursday, Stewart predicted a rally for global stocks if inflation has indeed peaked in the U.K. and U.S. and the Ukraine war ends, but says the threat of a “deep recession” keeps the argument open for bears and bulls.
The good news? “The speculative froth topping the valuations of many growth stocks has been blown away by higher interest rates and harsher economic conditions. We now look forward to the possibility of company fundamentals, not sentiment, driving share prices, if not for the short term, certainly in the long run,” said Stewart.
One of the fund’s stockpickers is GQG Partners, whose Global Quality Equity Fund GQRIX, +0.07% has a top five-star rating on Morningstar. GQG timed an exit out of overpriced tech names in 2021, and put the money into cheaper energy companies, said the chairman.
Brazil’s Petrobras PETR4, +1.27% PBR, +2.73% and Exxon Mobil XOM, -1.46% were top performers for Alliance Trust in 2022, while a lack of exposure to Tesla TSLA, -3.04% meant it avoided the slump in the EV maker last year. Note, in its January fact sheet, Alliance Trust said lack of exposure to Tesla TSLA, -3.04%, Nvidia NVDA, +3.83% and Apple AAPL, +0.84% this year means they missed out on those rebounds.
Among stocks added to the portfolio, Vulcan Value Partners picked up commercial real estate group CBRE CBRE, +0.41% and industrial giant GE GE, +0.68%, whose management it believes “has made considerable progress in simplifying the company’s structures and de-risking the balance sheet.”
Canada-based valued-themed investment manager Black Creek added Stericycle SRCL, +0.22%, a global leader in regulated waste disposal services to businesses. The company’s valuation “is temporarily depressed as it goes through a multiyear restructuring program which will leave it stronger in the long run,” said the manager.
Stewart said high-quality cyclicals with “temporarily depressed valuations” could see an outsize benefit from an economy bounce. “This reflects the fact that our approach does not attempt any big calls on the future direction of the market. We believe there are potential mispricing opportunities across the market, whether it is among growth stocks that have been oversold or value stocks whose earnings prospects are underappreciated,” he said.
In the January fact sheet, Alphabet GOOGL, +0.42%, Microsoft MSFT, -0.18%, Visa V, -0.44%, Amazon AMZN, +0.40% and Exxon Mobil were the top five holdings for the fund, but “notable” contributors to the month’s performance in the top 20 were MercadoLibre MELI, -0.98% —known as Latin America’s Amazon — Visa V, -0.44% and wireless networking group Skyworks SWKS, +2.39%.
Read: This cash-cow stock strategy is attracting lots of money. Here are its top 10 picks.
Stock futures YM00, -0.12% ES00, -0.33% are lower, led by tech NQ00, -0.57%, as the two-year yield hovers around 5% and the 10-year TMUBMUSD10Y, 4.016% at almost 4%, and the dollar pulls back. Oil prices are weaker, Europe stocks SXXP, -0.54% are in the red and Asia HSI, -0.63% closed mostly lower.
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Weekly jobless claims are due at 8:30 a.m., and ahead of that, outplacement firm Challenger, Gray & Christmas said year-to-date job cuts are the highest since 2009. Fed Vice Chair for Supervision Michael Barr will speak at 10 a.m.
After the close, Oracle ORCL, +0.15%, Gap GPS, -1.24% and DocuSign DOCU, +1.14% will report results.
Silvergate Capital shares SI, -5.76% are down 52% in premarket trade and falling fast after the lender said it would wind down operations and liquidate its crypto-friendly lender and subsidiary Silvergate Bank. That has ricocheted across to Signature Bank SBNY, -1.47% stock is down 11% even though the lender has already said it’s whittling down its digital asset deposits.
Troubled Swiss bank Credit Suisse CS, +0.35% says it will delay publication of its 2022 report after the Securities and Exchange Commission questioned its 2019 and 2020 cash-flow statements.
California has dropped a $54 million contract with Walgreens Boots Alliance WBA, +1.00% over the pharmacy chain’s abortion-pill ban in some states.
Sen. Republican leader Mitch McConnell is in thehospital after a fall.
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