Mutual fund manager David Ellison has turned ultra-bearish on financials and has moved to large cash positions in his FBR Large and Small Cap Financial funds.
"I don't want to lose any more money," Ellison told in The Wall Street Journal, explaining his move into high percentages of cash in both his funds.
Ellison has more than $1.4 billion under management in all of the FBR funds he manages.
His $11 million FBR Large Cap Financial stands at about 50 percent cash now. At the beginning of last year, the fund was at 2 percent cash. The $123 million FBR Small Cap Financial now stands at 38 percent cash, from zero percent.
Typically, the portfolios of money managers such as Ellison will be 95 percent invested in selected equities and instruments, with only 5 percent or less in cash.
As of June 30, FBR Large Cap Financial was down 31.05 percent over the previous year. The average annual return since inception is 6.50 percent.
The fund has holdings in commercial banks, capital markets, diversified financial services, thrifts and mortgage finance, IT services, REITs, and consumer finances.
The FBR Small Cap Financial fund holds thrifts and mortgage finance companies, commercial banks, household durables, diversified financial services, and REITs.
That fund was down 24.25 percent as of June 30 over the previous year. The average annual return since inception is 10.26 percent.
Financials have recently recovered substantially, surging up as much as 30 percent from severely depressed levels.
Down markets can be great opportunities to buy under-valued equities, say many money managers, who claim an ability to spot the few potential winners among the numerous losers.
Yet Ellison sees trouble looming in the sector which is his specialty and in which he made his reputation as a highly successful money manager.
"The timing of a sector turnaround is impossible to predict," Ellison says.
Among the many problems afflicting financials, according to Ellison, are weak loan demand, non-performing assets, uninsured liabilities, continuing foreclosures, and defaulting loans.
Citing what he terms as "poisonous debt lurking inside financial outfits," Ellison says regulatory intervention may be required to set financials back on their feet and headed upward.
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