Amid ‘Brexit’ selloff, some fund managers are bargain shopping

By: | Published: June 25, 2016 10:12 AM

Britain's unexpected decision to leave the European Union spurred a global stock market selloff that has inspired some opportunistic U.S. investors to move in the opposite direction.

U.S. stocks and bonds are a "great" buying opportunity on Brexit, said Gregory Peters, a senior investment officer at Prudential Fixed Income with more than 1 billion of assets. (Reuters)U.S. stocks and bonds are a “great” buying opportunity on Brexit, said Gregory Peters, a senior investment officer at Prudential Fixed Income with more than 1 billion of assets. (Reuters)

Britain’s unexpected decision to leave the European Union spurred a global stock market selloff that has inspired some opportunistic U.S. investors to move in the opposite direction.

Operating on the belief that the initial rout might be an overreaction, even in some European stocks, several fund managers said on Friday they were buying up shares of big blue chips, domestic companies that are insulated from a lot of European activity and even European companies that might have been oversold.

“We are looking to put cash to work in some of our favorite companies which are cheaper today,” said Kevin Dreyer, the co-chief investment officer at Gamco Investors Inc, noting holdings such as razor blade and sunscreen-maker Edgewell Personal Care Co that were down more than 3 percent in morning trading.

The benchmark S&P 500 was also down about 3 percent in midday trading.

Still, some investors gravitated toward U.S. companies that are relatively insulated from Europe and can withstand what many expect are coming referendums in France and Scotland over their EU membership.

U.S. stocks and bonds are a “great” buying opportunity on Brexit, said Gregory Peters, a senior investment officer at Prudential Fixed Income with more than $621 billion of assets.

“Uncertainty will be a multi-year event, which will clearly benefit the U.S. from rates to risk assets (except for financials), as the U.S. will benefit from capital flows,” he said.

Several fund managers said they were drawn to U.S. companies that had little exposure to Europe.

John Boland of Maple Capital Management, an investment manager based in Vermont, said his firm has been considering some stocks that look too beaten-down because of Brexit-induced turmoil.

For example, he bought shares of Chipotle Mexican Grill when it was below $400 a share early Friday.

“They’re a U.S.-focused company, so it was illogical for them to be down. That’s what we’re looking for, companies that have no ties or minimal ties to the EU market,” Boland said.

Salesforce.com Inc “looks to be the most mispriced based on the Brexit vote” among technology stocks because Europe accounts for only 17 percent of its revenue, FBN Securities said. And Gary Bradshaw, a portfolio manager at Hodges Capital Management, said he had put in buy orders Friday for companies such as Home Depot Inc that are more domestically oriented.

Those who did take a chance on European shares during a selloff that sent the Euro Stoxx 50 index of blue-chips down about 7 percent said they focused on infrastructure companies with high recurring cash flows.

Michael Underhill, a portfolio manager at RidgeWorth Investments, said that he was buying shares of Groupe Eurotunnel SE, which were down 14.5 percent, and Italian airport operator Atlantia SpA, which has fallen 9 percent, because he expects the market is over exaggerating the impact that the so-called ‘Brexit’ will have on European travel.

“You will see some more passport controls and higher security, but at the end of the day the business of logistics and travel will keep grinding higher,” he said.

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