(Bloomberg News) Equities that fell farthest last year are surging the most in a decade, reversing the fortunes of mutual funds and signaling developed countries, banks and Asian exporters will extend the global rally.
The MSCI All-Country World Index's 100 worst-performing stocks of 2010 rose 5.3% as a group last month, the top January gain since 2001, while last year's best performers fell 2.6%, according to data compiled by Bloomberg. Investors are moving into developed nations from emerging markets, buying European banks and selling raw-materials shares, snapping up South Korea's electronics exporters and avoiding Indian consumer stocks-all at the fastest pace since the bull market began.
The switch shows increased confidence that growth in the U.S. and Europe will underpin the global expansion as emerging countries raise interest rates to combat inflation, according to Artemis Investment Management and ING Investment Management. It has catapulted Bill Miller's $4.07 billion Legg Mason Capital Management Value Trust to the top of the mutual fund rankings after trailing 98% of peers in 2010, data compiled by Bloomberg show.
"For the bull market to continue we need to see a broadening of the rally," said Jacob de Tusch-Lec, who helps oversee about $18 billion as a money manager at Artemis in London. Without it, "you would get overheated bubbles in many parts," he said.
Most in Five Years
The turnaround as global stocks posted the biggest January advance in five years shows investors are more willing to risk money on companies where weaker economic growth or earnings increases have pushed down valuations. The 100 stocks with the biggest gains in 2011 trade at two times book value, or assets minus liabilities, compared with 5.6 times for those whose shares have done worst, according to data compiled by Bloomberg.
The MSCI All-Country World Index dropped 0.6% at 11:21 a.m. in New York after rising three straight days.
This year's relative performance, called the "Great Rotation" in a Jan. 27 note by Bank of America Merrill Lynch, saddled some of last year's top-performing money managers with losses and boosted returns at the worst performers. Miller's fund gained 5.4% through Feb. 1 as holdings including San Jose, California-based Cisco Systems Inc. rebounded, putting the 61-year-old manager ahead of 91% of his rivals.
Bad For Performance
"Bill characterized 2010 as a very good investment year, but not a good performance year," Mary Chris Gay, assistant portfolio manager of the Legg Mason Capital Management Value Trust, said in an interview yesterday. "We were able to make a lot of investments and increase exposure where we felt there was considerable opportunity."