A quarter of the incremental earnings generated by the S&P 500 in 2011 will be sourced from just four companies, all of which are financials, according to Legg Mason Capital Management.
Chairman and chief investment officer Bill Miller say the four stocks are all banks – Bank of America, Citigroup, JP Morgan and Wells Fargo.
Miller adds that American financial stocks are also predicted to have the fastest growth in earnings and dividends in 2011, explaining why he is heavily overweight in the sector in the LMCM value trust and the opportunity trust.
He says: “Many fund managers are underweight in financials because of uncertainty and risk, yet financials have never been as cheap as they are now on a price-to-book basis. All the uncertainty is reflected in their price.”
Miller is also overweight in technology and healthcare. He says alongside financials they are the three cheapest sectors in the market based on valuations.
Areas in which Miller is underweight in his value and opportunity funds are materials, industrials, energy aND consumer staples.
He says: “All these sectors are attractive on an absolute basis, it is just they are not as attractive as some of the other sectors.”
Miller considers that the noise being created over a second round of quantitative easing in the US is “far greater than it warrants”.
He says: “Quantitative easing has many different consequences, many of which are behavioural and psychological, but none is economic.”