“The Comprehensive Capital Analysis and Review (CCAR) regulation under Dodd-Frank negatively impacted smaller regional banks in the US. Thus, if there is a repeal of some of those factors, that means these banks will be able to lend without having as much capital in their base, which should make lending a little easier. We were overweight a lot of banks in our portfolio not because we saw Trump’s victory but because banks were trading at a level we hadn’t seen since the late 90’s on a price to tangible book. Since the election, banks are up 20% in my part of the market and earnings per share should be affected quite positively very quickly.”
Ward is less enamoured with financials and other cyclical stocks, although he does maintain a modest underweight to both financials and industrials, preferring instead to focus on the tech sector. “While many are dumping their Facebook and Google shares, we are overweight in tech. Tech has a lower valuation but a far higher growth rate, to the tune of 15 to 16 times and getting 15 to 20% EPS growth. Healthcare is similarly trading at 16 times and is also in the 14 to 16% growth range.
“What is so interesting is that quantitative easing has pushed so much money into spaces where traditionally there has been not as much interest. Bond proxies like consumer staples, utilities, those are the guys that have done the bulk of the lifting of the overall valuations. As a result, tech ends up looking somewhat more interesting because the valuations aren’t as high; same with healthcare,” argued Ward.
Even still, Ward is maintaining a modest underweight exposure to financials and is underweight industrials to take advantage of an eventual rise in rates and a moderately growing economy on the one hand, and quick earnings recovery on the other.
