In his fourth-quarter shareholder letter, top fund manager Donald Yacktman and his team say they expect the market to shift from stocks with “exciting” stories to those that have “stable, established value” sometime soon.
The rally over the last four months of 2010 was driven by the Federal Reserve’s second quantitative easing plan, the Yacktman team says, and that created an environment in which “top performing stocks were generally lower quality, with cyclical, commodity, and industrial related shares, as well as more speculative small and mid‐cap stocks leading the rally.”
Discussing the firm’s technology holdings, the team adds, “The technology sector typified the general investment environment last year, where more ‘exciting’ stories generally performed better than more stable, established value. We think that will reverse sometime soon.”
The Yacktman team also reviews its overall strategy and investment approach. It says, for example, that the firm’s favorite types of companies are those with products and services that have “fairly stable demand in both good times and bad.” And, it says, “We find the best way to protect the funds is by selecting securities one at a time, emphasizing businesses that have a strong market position and relatively stable profit margins.” Price is also a key factor, and the funds will also hold cash when they aren’t finding enough attractive opportunities.