Michael Karsch, founder and portfolio manager of Karsch Capital with $1.8 billion under management, talks about the mania of safe stocks that has infected Wall Street, in a Q1 conference call. He says that investors who were spooked by the bubble burst of 2000 are now over-invested in safe haven companies. He points out that the reason investors have become so excited about stocks lately is because of attractive dividends which yield almost the same way as bonds.


We have already reported Karsch’s Q1 performance earlier and you can see major changes in Karsch Capital’s long portfolio here.

Karsch Capital’s own safe haven investment was Pfizer Inc. (NYSE:PFE), which the fund exited in mid-May at $28.93 per share. Other conservative companies that have experienced a flurry of safe haven inflows recently are Kellogg Company (NYSE:K) and Campbell Soup Company (NYSE:CPB).

On Yahoo and Vodafone

Karsch discussed Vodafone Group Plc (ADR) (NASDAQ:VOD) and Yahoo! Inc. (NASDAQ:YHOO) as high potential stocks. He said that both companies have some hidden assets which make them valuable.  In the case of Vodafone Group Plc (ADR) (NASDAQ:VOD), it is the British company’s major stake in Verizon Wirless—whereas Yahoo owns Alibaba, which is said to be the gem of e-commerce.  Karsch said that both companies are monetizing their assets as both are looking into selling these stakes.  Karsch says that this would not only be good for the companies but it would also benefit the shareholders.

Best Performing Positions for Karsch

Karsch’s best performers for Q1 were longs in  Pfizer Inc. (NYSE:PFE),  Autodesk, Inc. (NASDAQ:ADSK) and Japan Tobacco Inc (TYO:2914), while a short in Li & Fung Limited (HKG:0494), an investment holding company, also came off at the top. Leading detractors in the long portfolio were Ulta Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) and Oracle Corporation (NASDAQ:ORCL) whereas shorts in E I Du Pont De Nemours and Co (NYSE:DD), Rockwood Holdings, Inc. (NYSE:ROC) and Infosys Ltd (NYSE:INFY) also declined in Q1.

Karsch has held long positions in PPG Industries, Inc. (NYSE:PPG), Sherwin-Williams Company (NYSE:SHW) and The Valspar Corporation (NYSE:VAL) and it has bet against E I Du Pont De Nemours And Co (NYSE:DD). All companies are involved in the paint industry, Karsch’s bull thesis here is that companies that are able to handle the higher supply of titanium dioxide (a component of paint) are positioned to ride the markets. On the other hand players like DuPont which have exposure to the production of titanium dioxide are not as capable of handling the excessive supply, hence Karsch is shorting it.

The fund has positions in China but  it believes that those companies will not be affected by China’s slowing growth data. As for Europe, here again Karsch Capital has limited positions in companies that are dependent on Europe, however the fund is bearish on the Eurozone.

In the U.S., Karsch points out  below-expectations earnings in industrial and technology sectors. He said that the lower earnings of International Business Machines Corp. (NYSE:IBM) and Caterpillar Inc. (NYSE:CAT) are examples of how the respective sectors are unable to show required growth.