Evening star., 1939-01-01
Investment Concerns
Place Funds for New
Cycle Cautiously
Many Portfolio Chiefs
Cling to Conservative
Price Guides
BY Cambridge Associates.

By Cambridge Associates.
Portfolio changes of the invest
ment trusts in 1888 reflect the rec
ognition of basic change in the
trend of the stock market. But
also they show considerable differ
ence of opinion among manage
ments as to the extent to which the
current rise may carry. While the
great majority have reduced hold
ings of cash and cash equivalent
in favor of common stock invest
ments, the proportion which has
gone intellectually into the spec
ulative favorites of the cyclical in
dustries is by no means overwhelm-
ing. And among those which have
adopted new policy are several
funds which have gained unusual
respect for sound judgment in the
past.
Greater consideration for price
earnings ratios is evident in the
selections of one leading trust. which
perhaps sets the keynote of the new
departure. Formerly when an up
trend was recognized, this manage
ment and practically all others in
vested heavily in steels. machinery
stocks, agricultural equipments.
rails, rail equipments, and other
like issues even though earnings
were in many cases very small in
relation to market prices. The
theory was that a boom in the heavy
industries would bring a rapid rush
Of profits. The combined return
Of capital gains and dividends paid
would thus far exceed the similar
return from less sensational CON
sumption goods" stocks which were
earning and paying good dividends
Chooses Consumption Goods.
When the Dow Theory and other
favorite indicators of the market
prognosticators called the turn last
June, however, this trust went con-
trary to the accepted practice,
bought large blocks of dairy stocks,
chain groceries. oils, utilities. At
the same time it liquidated some of
its large holdings of steel and ma
chinery stocks. Several considera-
tions may have dictated this move,
among them:
l. Need of higher income to main
tain dividend rates.
2. Belief that heavy industry
would be slow of response.
3. Theory that such stocks were
cheaper on the basis of their aver
age earnings for a period of years.
4. Substitution of stable, income
paying stocks for cash or bond hold
ings because of the risk of rise in
interest rates.
5. AS a compromise recognizing
the risk of an early reversal of the
uptrend.
1t is probable that 90 and (5)
were the dominant factors. Stocks
Of consumption industries have been
relatively cheap ever since the re-
covery from the great depression
began, largely as a result of the
popularity of the "cyclical indus
tries Many fingers were burned,
II,
and buyers in need of a more or
less stable income are again turn
ing to consistent payers, in recog-
milton of their investment calibre.
Yields of many of these stocks are
still far out of line with bond and
preferred stock yields, giving con-
sideration to the risks involved, and
return of income seeking funds
to the stock market will undoubtedly
improve these prices markedly.
Differences Of Opinion.
The variance of opinion evident
among managements of considerable
experience and resource is healthy
sign. At no time when expansion
of business has reached an unsound
stage has there been much differ
ence Of opinion among investors,
large or small Conversely, lack of
agreement has generally character
lied the early stages of business
imprOVemer1t