to liquidate those positions to answer those margin calls and they paid back three and four times the dollar amount they had invested.
BE: What do you see as the best sector plays in today’s environment?
GOODWIN: We are underweighted in basic materials and our outlook is negative because we’re concerned about flat to declining commodity prices. We’re still concerned about deflation because of what is happening in the emerging markets. We have some of the same issues with energy. If you look at consumer staples-food, beverage and tobacco-we’re also underweighted in this group and near term, we’re negative on the group. The weaker dollar should help but it’s not really enough to offset some of the global market issues. I was very surprised, in October of last year, when you saw investors rush into the Cokes, Pepsis and Gillettes of the world. These are typically regarded as safe havens because when growth slows in the U.S., they make it up because of their emerging markets exposure and, today, the equation is reversed. The U.S. and Europe are fairly strong and it is the emerging markets where we are seeing the weaknesses.
We’re actually pretty optimistic about consumer cyclicals. The
industries we would highlight are broadcast media and cable. We see the acceleration of revenues with some of the radio stocks as they get a more significant share of advertising dollars versus network television and local newspapers. We’re also constructive on retail, to some extent. Within the consumer cyclical group, we’ve done very well with the discounters. The discounters, next to the Internet companies, took over Christmas because investors are a little bit more value conscious. But, we think that you might see some plays in high-end retail this time. In industrials, we like well-managed names. We look at the companies like GE and Tyco, which are big acquirers. You see the potential for positive surprises. We also remain favorable on pharmaceutical stocks and retain at least a market weighting there.
FRAZIER: I like to focus on long-term themes and my four themes would be cable TV and entertainment; financial issues with an emphasis on insurance; technology/ Internet and health care/pharmaceuticals.
HOLLAND: Technology continues to be one of our favorite sectors, however, we have recently reduced our exposure somewhat because valuation levels have increased dramatically. We’re slightly overweighted relative to the S&P. Our largest holding is Microsoft, which is about 4% of our portfolio. While U.S. technology companies are the best in the world and the principal driver of increases in global productivity, we are somewhat concerned about the global economic slow down. Our largest sector is healthcare and we continue to like it. We own the drug companies and the medical device companies and have avoided the managed care sector which has underperformed. A variety of things are working for drug companies. They are one of the few groups that have rising earnings. These companies are consolidating and are getting the synergies achieved by merging research and distribution departments. Another important trend is demographics