An Interview with Zach Jonson, Portfolio Manager of ICON Materials, Industrials and Core Equity Funds
Manages $260 million for institutional and individual investors
Q: Should investors be worried or optimistic going into 2011?
A: We see a lot of opportunity across the whole marketplace, going into 2011, so we do believe that investors should be optimistic. That's definitely a frowned-upon view when it comes to the overall Street. And so at this point, like I said, when we take a step back and use our overall methodology, we're seeing ample opportunity within the market.
Q: Where specifically are those opportunities emerging?
A: Two very specific sectors that we like at this point are the Industrials and the Materials sectors. They are generating a large portion of their revenues overseas, and so they're able to really benefit from overseas growth. That's where we're seeing forward-looking growth rates coming in from the analysts that we utilize.
Q: What role does gold play in your portfolio, and can you talk about the strengths and weaknesses of some of the mining stocks you're investing in?
A: We've been overweight gold for quite some time. When you take a step back and ask what role does it play in your portfolio, I think you have to ask, as an individual investor, how do you want to allocate to that.
Since we are value investors, we see opportunity from a valuation standpoint. We don't buy the underlying asset. We buy the stocks within an industry. These stocks are realizing margins that they've never really been able to realize before.
Q: So what are some of the risks that investors should be aware of as far as the Materials sector?
A: The largest risk you run into when you're investing in Materials is volatility. One thing that can help with volatility is quote/unquote, "margin of safety." We're not going to invest in equities that we believe are over-valued. However, you are still cyclical -- cyclically oriented--- and you're also very tied into emerging market growth. Those are two factors that create a lot of volatility.
The valuations are there, and we believe the prospects are there for good, solid growth. There is going to be volatility, so it's a risk that you need to be aware of.
Q: Could we talk a little bit about the impact of China on your sector?
A: China has really been driving the growth for commodities across the board. Their insatiable demand for all types of commodities really has driven this bull market. They've really almost completely demanded all the copper that's out there, and they even have demand for agricultural commodities, as well.
China's growth is one of the main contributors to our bullish outlook, because a lot of analysts on the Street continued to see forward-looking prospects for China remaining strong.
Q: Where are your portfolios over- and underweight?
A: It kind of ties into our overall theme of where we're seeing the growth. Again, the Industrial sector right now is our largest domestic overweight within our core equity fund. We see a lot of opportunity in that sector and that varies from domestic transportation companies, specifically airlines. We really like airlines, and have for quite some time. We're seeing this re-emergence of the business traveler, and so that makes us very attracted to that area.
Our second largest overweight is the Materials sector, and again, that's because that sector's going to benefit from this emerging market economies that are going to achieve a lot higher GDP growth than we're going to see domestically.
Now, as far as an underweight, we've been underweight healthcare for quite some time now, and we remain underweight. The biggest hurdle we have with healthcare is not value. We actually do see values within these companies. But when you take a step back, they aren't really participating, and the main reason we believe they are not doing that is the fact that they don't really have a lot of overall issues going on. You've got Obamacare. You've got a lot of political questions. And what that does is that really, long-term, disconnects fundamental value from participation. So it is an area that we remain underweight in.
To read more articles, please visit the column archive.