Fisher Sells $1 Billion of Emerging Stock ETFs in Contrarian Bet

 Billionaire Kenneth Fisher said a surge in investor optimism toward developing nations spurred his money-management firm to sell more than $1 billion of emerging- market exchange-traded funds last quarter.
Fisher Investments sold 20.6 million shares of the iShares MSCI Emerging Markets Index fund and about 2 million shares of the Vanguard MSCI Emerging Markets ETF, according to regulatory filings. The Woodside, California-based firm, which had held more than 20 million shares in the iShares fund since at least September 2008, cut its stake by 99 percent and was the top seller among more than 400 investors that reduced holdings in the period ended March 31, data compiled by Bloomberg show.
“This is about sentiment having gotten too ebullient, too sanguine,” Fisher, who oversees about $44 billion as chief executive officer of Fisher Investments, said in a phone interview yesterday. “Things that lead a bull market early on reach a period at some point, which we think is about now, where they start to run out of steam.”
Fisher said his “underweight” position in emerging markets is the biggest in several years, meaning he holds fewer of the shares than are represented in benchmark indexes. By contrast, developing-nation countries are global money managers’ most-favored investment destination for equities, with a net 29 percent owning “overweight” holdings, according to a Bank of America Merrill Lynch survey released yesterday.

‘Always Dangerous’

The MSCI Emerging Markets Index has climbed 152 percent from its 2008 low, compared with a 60 percent gain in the MSCI World Index, as economic growth of more than double the pace in advanced nations lured investors. The emerging-market gauge rose 0.9 percent to 1,143.50 at 10:48 a.m. in London, trimming the retreat since March 31 to 2.3 percent. The index is down 0.7 percent for the year.
“People were seeing this as a near-certain place for success, which is always dangerous,” said Fisher, who was ranked number 252 on the Forbes list of the 400 richest Americans this year.
The 60-year-old investor said 2011 will likely be a “resting period” for the global equity rally. He said investing in individual companies may be a more successful strategy than regional or sector bets using ETFs, and he’s been shifting money into technology and energy stocks.
“ETFs are a perfectly marvelous tool, but 2011 is more of a year when they’re less useful,” Fisher said. “You can’t be as picky with them.”

Biggest ETFs

Fisher Investments reported increased positions in emerging-market companies with U.S.-listed securities including LG Display Co., the South Korean maker of flat screens, and Banco Bradesco SA (BBD), Brazil’s second-biggest bank by market value, according regulatory filings compiled by Bloomberg.
The money-management firm cut its holdings of the iShares emerging-market ETF to 234,690 shares from about 20.8 million on Dec. 31, data compiled by Bloomberg show. Its stake in the Vanguard ETF was reduced to 75,966 shares from more than 2 million, the data show. The iShares ETF traded at an average price of $46.53 in the first quarter, while the Vanguard ETF averaged $47.02.
The funds, which change hands throughout the day like stocks, are the biggest ETFs dedicated to emerging markets in the U.S., with combined holdings of about $86 billion, data compiled by Bloomberg show.
Money managers who oversee more than $100 million in equities must file a Form 13F with the Securities and Exchange Commission within 45 days of each quarter’s end to show their U.S.-listed stocks, options and convertible bonds. The filings don’t show non-U.S. securities or how much cash the firms hold.

Underperformance

The MSCI emerging markets index has underperformed the MSCI World index of advanced-country stocks by 2.3 percentage points since March 31 as tighter monetary policy in countries including China, India and Brazil raised concern that economic growth will slow. Fisher said his reduction of emerging-market holdings was driven mostly by the view that sentiment had become too bullish, not a negative outlook for economic and earnings growth.
“There’s always little things going wrong, but this is not about the economies,” Fisher said. “We’ve looked for the beginning of shifts to somewhat different leadership” in the markets, he said.