Top fund manager says don’t buy the share market dip

Key points

• One leading expert has said that investors shouldn’t buy this market dip
• Morgan Stanley fund manager Andrew Slimmon thinks that investor sentiment could leave the growth names for a while
• Better priced tech names like Microsoft and Alphabet are more attractive to him

In the last few weeks, there has been widespread declines for plenty of ASX shares as well as the global share market.

Looking at the S&P/ASX 200 Index (ASX: XJO), it has fallen 5% since the start of the year. But plenty of ASX shares have fallen even more.

For example, the Xero Limited (ASX: XRO) share price has dropped 20% this year. The REA Group Limited (ASX: REA) share price has fallen 14% in 2022. Buy now, pay later business Zip Co Ltd (ASX: Z1P) has seen its share price fall 23% in 2022. The Temple & Webster Group Ltd (ASX: TPW) share price has fallen 23% this year.

It has been a rough start to 2022 for the names that are known as growth stocks. 

One common saying in the investment world is ‘buy the dip’. But one leading fund manager does not think that the current decline of (international) high-growth shares is an opportunity.

A warning against buying the dip

Andrew Slimmon, senior portfolio manager at Morgan Stanley Investment Management, recently spoke on the “What Goes Up” Bloomberg podcast.

The key line he said was: “Avoid the temptation to step in and buy into the selloff in high-growth stocks. My experience is: Once the fever breaks, it’s done for quite a while.”

He doesn’t think that many ultra-growth shares are going to see a V-shaped recovery because if share prices start to recover, there will always be someone looking to get out at a breakeven price to what they bought it for.

Mr Slimmon doesn’t think that this is quite the same as the dotcom bust in 2000. The big tech names like Microsoft and Alphabet are not trading at extremely high earnings multiples. However, the ‘uber-growth shares’ are/were as expensive as they were in 2000.

When could prices recover?

He went on to say on the podcast that there could be a bit more of a decline to come with the share market, or at least these high-growth names:

Well, I think it’s first seller exhaustion, where stocks stop going down on bad news because there’s no one left to sell them. And I’m just not sure we’re there yet. I haven’t seen big capitulation. I mean, the stocks are down a lot, but there hasn’t been big capitulation in these stocks. The other way I think about it is when no one believes that they can buy the dip anymore. That’s when the bottom happens, right? When people say, “I don’t want to touch them. These are un-investible,” that’s when I get interested. But when people are saying, “Hey, well, what do you think?” Because the memory of making a lot of money is too recent and that leads people to try to bottom fish.

Mr Slimmon said that once those shares stop having ‘counter trend rallies’ and people aren’t interested in that investment any more, that’s when it could be kind of interesting to him.

What shares look good?

According to the fund manager, some of the out-of-love names that look good at the moment are Microsoft, Alphabet and Danaher.

However, the sectors that have an outsized allocation in the portfolio he manages are: financials, real estate investment trusts (REITs) and energy shares. But bear in mind, he is not an Australian-based fund manager.

The post Top fund manager says don’t buy the share market dip appeared first on The Motley Fool Australia.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns and has recommended Temple & Webster Group Ltd, Xero, and ZIPCOLTD FPO. The Motley Fool Australia owns and has recommended Xero. The Motley Fool Australia has recommended REA Group Limited and Temple & Webster Group Ltd. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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