The Artemis manager switched from Threadneedle earlier this year along with Stephen Moore and Willam Warren and five analysts, who are set to launch five US funds in September 2014 that will closely mirror the strategies they have historically run.
Two of these – Threadneedle American, American Extended Alpha and American Smaller Companies – were part of the FE Select 100 prior to Weldon’s departure, and will now have Artemis US, Artemis US Select and Artemis US Smaller Companies as direct competitors.
Just because a market has performed well doesn’t mean it can’t continue to perform well, Weldon says, pointing to the improving strength of the US economy as evidence that strong performance can keep on going.
“The perception is that the US is expensive but it is one of those things where you sit back and think: what would I rather buy, the cheaper asset [or the better asset?]” he said.
Performance of indices over 5yrs
Source: FE Analytics
“Europe and Japan have lower P/E [price-to-earning] ratios but there are obviously issues that come along with that.
When you compare US stocks with government bonds giving you 2.6 per cent, which is a very low yield over a 10 year period, they still look attractive.”
The manager thinks tech, energy and house building stocks remain particularly attractive.
“US tech is a very attractive sector and if we were running money right now it would be quite overweight in our portfolio,” he said.
“It would be split between chunks of old and new tech, but the value opportunity is particularity in the older tech stocks such as Microsoft and Intel. Their cash-flow generation is still very substantial relative to history.”
“Also parts of the energy sector are the cheapest they have ever been relative to history and house builders should be given a boost as the economy continues to strengthen.”
“Big oil is the cheapest it’s ever been, but isn’t cheap for no reason. There is a disagreement about its perceived potential growth rate. Smaller energy companies are also very looking attractive in the market.”
US equities have rallied ahead of other developed market indices since the financial crisis with both the S&P 500 and the Nasdaq 100 far ahead of the FTSE All Share, Nikkei 225 and Euro Stoxx over five years.
This has led many commentators to state that the strong performance of US markets, coupled with the tapering of the Fed’s quantitative easing program and a likely hike in interest rate in the near term, is a reason to sell.
FE Alpha Manager Marcus Brookes has become increasingly bearish, building up a high cash weighting in his £1.4bn Schroder MM Diversity fund to almost a third.
Since tapering began in January 2014, US government bonds and US equities have also made moderate gains – contrary to expectations.
Performance of indices in 2014
Source: FE Analytics
Stuart Reeve, manager of the BlackRock Global Income fund, says the impact of tapering and rising interest rates is unlikely to be felt across the board by US investors.
He thinks some dividend-paying stocks able to continue to grow, though bond proxies could be set for a difficult period.
“With the end of QE in the US now underway, and the prospect this may lead to rate hikes, many fear for the future returns to dividend-paying stocks. This comes from the perception that dividend-paying stocks are bond proxies, and as such their value will fall as rates rise,” he said.
“However, the negative impact of rising rates will not be felt equally by all dividend paying stocks. Those with strong fundamentals that combine attractive yield with sustainable growth are unlikely to be affected but the same cannot be said for stocks picked purely based on yield.”
He says fears of rising rates are yet to materialise, and says question marks over the strength of US economic growth – after the Fed recently revised down its GDP forecast – could see them stay lower for longer.
“Sentiment and expectations for GDP growth in the US, and elsewhere, have been much more volatile and far more optimistic than the growth actually delivered,” he said.
“Looking back over the very long-term some data suggests the average US GDP growth rate has been declining steadily over each of the past five decades.”
“On the basis that economic growth remains moderate over the medium-term, quality businesses with strong pricing power and ability to grow and expand their footprint present investment opportunities.”
Weldon adds that the recent upsurge in popularity for passive and exchange traded funds is making stock picking easier.
“The number of stock pickers as a percentage of the volume investing in US equity markets has declined dramatically in recent years,” he said.
“Prior to the recent growth of ETFs, stock picking made up less than 20 per cent of the volume on the New Stock Exchange.”
“With the rise of ETFs and smart beta strategies, stock picking has become a smaller and smaller part of the market. That has to throw up opportunities due to the inherent inefficiencies associated with it.”
FE Trustnet will look at top-rated funds for investors still bullish on US markets in an upcoming article.
