After three years of underperformance, Allianz's Seung Minn believes his US equity fund’s previously loss-making play on industrials and materials stocks is set to pay off this year.
The San Francisco-based manager of the Allianz US Equity fund took a hit following the crisis due to his heavy exposure to companies affected by the global slowdown in economic activity.
Moreover, an underweight in consumer names alongside substantial holdings in less defensive names contributed to the biggest losses in over the last twelve months.
'I think that this will be a transitional year for the fund as industrials and materials sectors are set to go back up,' said Minn during an investor conference call.
Airplane company Boeing and infrastructure firm Caterpillar make up 4.36% and 2.46% of the fund respectively. Other names in the top holdings include Exxon Mobile, Adobe Systems and AT&T.
'Boeing is a name with a strong background but has suffered on short term setbacks. Caterpillar, also has strong fundamentals - it has just suffered in the current economic environment as a global exporter,' Minn added.
Minn lost his Citywire A-rating last year as his performance consistently dipped below benchmark.
In the twelve months to the end of January, Minn's best performing Ucits fund, the Allianz US Equity Fund - CT, returned 9% in US dollar terms. This compares to the S&P 500 index's rise of 16.8%.
'The portfolio seems to have gained cyclical exposure due to our rebalancing strategy towards cheaper names - it's not because we have taken a top-down pro-cyclical stance.'
'In the past two or three years, we've found that some companies have continued to suffer despite strong fundamentals,' he said.
Already overweight towards the IT sector, Minn said he has recently added to his exposure through tech firm Qualcomm. In financials, he has recently added asset management firm BlackRock and is hopeful stock markets will this year react to disappointing earnings.
'Companies in the pharma space have gone up despite earnings staying low. I also think investors are going to be disappointed on earnings from utilities, consumers and even some housing stocks,' he said.
'Our strategy is to stay with the leaders in each of the sectors this year.'
The three year period between the start of 2008 and the end of 2010, the Allianz US Equity fund returned over 8% whilst the S&P 500 index fell 0.2% in the same period - earning Minn a Citywire A rating.
However, the last three years to date have seen Minn's strategy suffer with the Allianz US Equity fund returning 35.8% compared to the S&P 500 which rose 48.7% over the same period.