Investing for the long term: A job for life
According to the Association of Investment Companies (AIC), more than half of investment companies,...
4 July 2018 marked the 242nd anniversary of the USA’s adoption of the Declaration of Independence. Since 1776 we’ve seen 44 US presidents come and go and, in the investment world, US equities have experienced nine bull and eight bear markets in the past 100 years alone*.
Now 9.3 years** long and 360.5%** ‘high’, the current US bull run has been a rewarding one for investors. The US technology sector in particular has done extremely well recently and, earlier this the month, social media giant Twitter – a favourite of Donald Trump – entered the S&P 500 index, underlining the increasing prominence of technology stocks within the US equity market.
With the US backdrop changing so rapidly, its political environment so volatile, and valuations arguably looking stretched in some cases, which US equity fund managers can investors trust to navigate the challenges that inevitably lie ahead?
Darius McDermott, managing director of FundCalibre, takes a look at his favourite five Elite Rated US equity managers:
Manager Stephen Kelly focuses on companies which offer innovation, unique brands and intellectual property, so can therefore control their own destiny. Because of this, Stephen and his team place significant importance on meeting the management teams, and will conduct more than 200 company meetings per year. His colleague, David Shaw, said recently that the US economy continues to show strong growth due to increasing business and consumer confidence, both of which have remained uncharacteristically subdued over recent years.
“We are always looking for secular growth companies, typically driven by innovation,” he said. “The US market, versus other regional markets, has typically provided strong support to such companies. For the fund, technology and healthcare remain rich areas for innovation and as such the portfolio is overweight in those sectors.”
Fund managers Hutch Vernon and Maneesh Bajaj look beyond whether a stock should be categorised as ‘growth’ or ‘value’ when positioning their portfolio, instead describing their approach as simply finding undervalued shares in attractive businesses. The duo have a positive outlook for US equities over the long term and believe there are higher odds of generating a positive return even in the short-to-medium term.
“Our view is supported by a healthy economic backdrop of strong GDP growth, full employment, a favourable interest rate environment, muted inflation expectations and relative attractiveness of the asset class versus bonds,” co-manager Maneesh told us. “We have been able to find attractive investment opportunities across diverse sectors such as mobile communications, semi-conductors, and financial services, which is a result of our bottom-up approach.”
Lead manager Mark Sherlock adopts Warren Buffett’s focus on whether a company has a ‘moat’ – in other words, whether it can maintain its advantage over its competitors over the long term. Mark believes the current economic environment in the US remains supportive, given that unemployment sits near historic lows, consumer confidence is high and US companies are enjoying synchronised global growth.
He said: “With inflation still nascent and a supportive Fed, it looks like this backdrop should endure. Earnings growth has accelerated and has broadened out from the technology sector. This has created a fruitful environment to buy into new names which are somewhat overlooked, in particular high quality, cash-generative businesses which are economically exposed, where their valuations have not been reflected in the current benign backdrop.”
As its name suggests, this fund is a ‘best ideas’ portfolio which will hold no more than 20 to 25 companies at any one time. As such, it tends to be positioned very differently from its S&P 500 benchmark. Managers Martin Flood and Christopher Blake make the most of a very well-resourced team at Lazard, which builds all of its own research models rather than relying on external brokers. This means the fund can hunt out attractive companies from across the cap spectrum, which many investors may have overlooked.
Managed on the ground in New York, the fund‘s manager Jenny Jones and her team of analysts scour the US small- and mid-cap market for investment opportunities, with little regard for the broader economic backdrop. Instead, they mostly look for companies which have been under-appreciated by the market, but have attractive growth prospects or are undergoing a company turnaround. Jenny and the team diversify these with ‘steady eddie’ stocks which are lower growth but less volatile, in order to reduce risk.
*First Trust, 29 March 2018
**FE Analytics, total returns in US dollars, 9 March 2009 to 26 June 2018