Why These Sectors Stand Out in a Star Fund Manager’s Investment Strategy

As summer and the mid-year mark approach, investors are finding success by sticking with stocks. Clare Hart, Morningstar’s 2024 “Outstanding Portfolio Manager,” shares her strategy as she wraps up a two-decade tenure at JPMorgan’s Equity Income Fund (OIEIX). Under her guidance, the fund has averaged a 9.4% annualized gain since 2004, outperforming both Morningstar’s large value category and the Russell 1000 Value Index by over a percentage point.

Hart’s investment approach centers on stocks that meet three criteria: quality, reasonable valuation, and dividend payouts. She seeks companies with reliable management and strong industry positions, often focusing on underappreciated innovators. Examples include Philip Morris International (PM) with its shift towards a “smokeless” future, and Procter & Gamble (PG), which leads market innovation.

Big Tech also features in her portfolio, with holdings in Microsoft (MSFT) and a smaller position in Apple (AAPL) due to valuation concerns. Financials make up the largest sector in her portfolio, with Wells Fargo (WFC) as a top holding. Despite the turmoil surrounding Silicon Valley Bank last year, Hart saw it as an opportunity, confident in Wells Fargo’s potential post its Fed-imposed balance sheet cap.

Charles Schwab (SCHW) is another notable holding, seen as a stable long-term investment with strong online tools for investors, despite last year’s concerns about its deposit base.

Energy stocks also play a key role in Hart’s fund, with ConocoPhillips (COP), Chevron (CVX), and Exxon (XOM) among the top holdings. Hart is optimistic about energy, recognizing the importance of these companies in the transition from fossil fuels and their commitment to efficiency and environmental friendliness.

As Hart prepares to hand over the fund in September to co-managers Andrew Brandon and David Silberman, she voices one ongoing concern: inflation. She notes that consumers continue to spend despite rising prices, and she anticipates that inflation fatigue could eventually impact the market.