Bloomberg News

Scottish Widows Investment Bets on U.S. With Wells Fargo

February 13, 2012

(Updates S&P 500 Index level in fourth paragraph.)

Feb. 13 (Bloomberg) -- Scottish Widows Investment Partnership bought shares of U.S. banks and consumer-related companies on signs the world’s largest economy will sustain its recovery as Europe struggles to contain a debt crisis.

Edinburgh’s second-biggest fund company lifted holdings of North American shares in the fourth quarter to 59 percent of its 2.8 billion pounds ($4.4 billion) of global stocks, from 49 percent at the end of June, said William Low, who is in charge of the money. It added to Wells Fargo & Co. shares and maintained its “already high” position in PNC Financial Services Group Inc., betting they will beat European peers. Low also bought Wal-Mart Stores Inc., the world’s largest retailer.

“The U.S. economy is showing clear signs of sustainable growth,” Low said in an interview at the company’s office on Feb. 3. In Europe, it’s “more challenging to find names that we can get particularly excited about because the economic headwinds are fairly strong,” he said.

The Standard & Poor’s 500 Index is up 6.8 percent this year, after ending last year unchanged. It was up 0.6 percent at 11:40 a.m. New York time today. A report on Feb. 3 showed a more-than-forecast 243,000 jump in U.S. payrolls in January, pushing the unemployment rate to the lowest since February 2009. Gross domestic product in the U.S. will probably expand by 2.3 percent in 2012, while the euro area may shrink by 0.5 percent, according to Bloomberg surveys of economists.

Global View

Wells Fargo, based in San Francisco, has gained 11 percent this year after losing 11 percent in 2011. Bentonville, Arkansas-based Wal-Mart’s shares have risen 3.6 percent in 2012 so far, adding to last year 11 percent advance. Wells Fargo rose 1.3 percent today, while Wal-Mart was 0.2 percent higher.

BlackRock Inc. Chief Executive Officer Laurence D. Fink said last week investors should have 100 percent of their holdings in equities because they offer higher returns than bonds. Low, 45, joined Scottish Widows Investment, part of Lloyds Banking Group Plc, from BlackRock, the world’s largest money manager, in Edinburgh last April.

He is responsible for the company’s money invested in stocks worldwide. His firm oversaw 136.9 billion pounds in total at the end of September, according to its website. Standard Life Investment, the biggest money manager in the Scottish capital, has about 150 billion pounds of assets.

Standard Life is counting on the U.S. as part of a strategy to safeguard capital in its biggest fund for outside investors, Euan Munro, head of the firm’s multiasset team, said in an interview. The firm favors technology-related stocks.

Performance

The 19.2 million-pound SWIP Global Fund that Low manages with Iain Fulton and Stephen Corr ranked 85 out of 223 peers in the second half of 2011, losing 8.75 percent, compared with an average decline of 10.27 percent, according to research company Morningstar Inc. It gained 18 percent in the same period in 2010, trailing behind an average 19 percent gain by its peers.

The MSCI World Index of developed-market stocks lost 10 percent including dividends in the six months though Dec. 31 as the debt crisis escalated, data compiled by Bloomberg shows. That’s compared with returns of 7.3 percent and 10 percent by U.S. Treasuries and German bonds, according to indexes devised by Bank of America Corp.’s Merrill Lynch unit.

Scottish Widows Investment sold its shares in Coca-Cola Co., the world’s largest soft-drink maker, as it moved “a bit more toward slightly riskier assets,” Low said. Coca-Cola is “a classic well managed company, but is just becoming too expensive relative to the market because people were paying a high price for safety.”

Coke Ratio

Coca-Cola shares value the company at about 18 times profit compared with an average price-to-earnings ratio of 14 for members of the S&P 500 Index, Bloomberg data show. The stock is up 8 percent over the past year. Low also sold Novartis AG, Europe’s biggest drugmaker, he said. The stock has fallen 4.6 percent over the last 12 months.

Gains in European stocks partly reflect easing concern of a Greek debt default and bank failures after the European Central Bank took steps to pump more money into the financial system, though the rally might not last because of the effect of austerity measures on economies in the region, Low said.

The ECB offered unlimited three-year cash to the region’s financial institutions on Dec. 8. The central bank also cut its main refinancing rate during its November and December policy meetings, matching a record low 1 percent.

“There’s a tactical rotational rally taking place within Europe,” Low said. “I’m afraid Europe is going to remain quite tough into the future.”

--Editors: Rodney Jefferson, Tim Farrand

To contact the reporters on this story: Lukanyo Mnyanda in Edinburgh at lmnyanda@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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