gegen den strom / against the crowd
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Federated Investors' Lehman Prepares Fund for Stock-Market Rout
Steven Lehman, whose $3 billion Federated Market Opportunity Fund has beaten more than 90 percent of its peers during the past five years, is more bearish than any time since stock markets peaked in 2000.
The 49-year-old manager more than doubled the fund's cash holdings in the past year to 36 percent and put 34.5 percent in bonds. He has another 5 percent in options that rise in value when equity prices fall. Lehman has just 12 percent of the Federated fund's assets in stocks, the least since the fund opened six years ago. The rest is in preferred shares and convertible bonds.
``I've positioned the portfolio for what I think will be a very difficult bottom here in the U.S. market and I'm waiting,'' Lehman said in an interview from his office in Pittsburgh. Falling home prices and weaker consumer spending will slow economic growth and hamper gains in corporate earnings, he said.
Only 8 percent of those funds have outperformed Federated Market Opportunity.
Lehman has 10 times more money in cash than funds run by rival managers. Gold miners led by Denver-based Newmont Mining Corp. and Johannesburg-based AngloGold Ashanti Ltd. are his biggest stock holdings.
Shares of Newmont and AngloGold both dropped 13 percent in the past week as the price of gold declined from a 26-year high of $732 an ounce reached in May. The stocks are still up 6.8 percent and 21 percent, respectively, in the past year.
The Federated fund's cash is the highest since 2004, when about half of the assets were in money-market securities. Lehman's fund rose 5.5 percent that year, half the pace of the S&P 500.
The Federated fund has a three-star rating from Morningstar, the third-highest ranking.
Lehman, known as Federated's ``house bear'' by his colleagues, said share prices are expensive after rising for three straight years. The average stock in the S&P 500 Index now trades at about 18 times earnings, up from 11.6 times earnings in 1988, the cheapest time to buy stocks in the past 20 years.
``These days you've got concerns about the housing market, the consumer, the government, the debt, and then there's the geopolitical risk,'' Lehman said. ``If you add all that stuff, it makes an even more compelling argument to be extraordinarily risk-averse.''
The U.S. economy expanded at a rate of 2.9 percent in the second quarter, down from 5.6 percent in the previous three months. Signs of a slump in the housing market prompted the Federal Reserve to keep interest rates unchanged at its Aug. 8 meeting after 17 straight increases since June 2004.
Lehman is holding put options on the S&P 500 that allow him to sell the contracts at 1350 until December.