The impending fiscal cliff and various other headwinds facing the US make it an unattractive destination for investors at the moment, according to Bruce Stout. 

Stout, who is a senior fund manager on Aberdeen Asset Management’s global equities team, says that not even a change in the White House would cause him to raise his exposure to the region.

"The US presidency is a poisoned chalice; whoever gets in will have to deal with major difficulties," he said. 

"We need a concerted attempt to address the underlying debt problem." 

Stout highlighted the fiscal cliff, or the point when a series of tax breaks are set to expire in conjunction with a massive reduction in government spending, as the major headwind facing the US economy. 

As a result, he has kept holdings in the US limited in the flagship $3.8bn Aberdeen Global World Equity fund. 

"Defensives are too expensive and cyclicals are not cheap enough," he added. 

The manager feels these valuations will not differ until a more focused policy towards the fiscal cliff is adopted. 

"There has been absolutely no progression made whatsoever in deleveraging the public sector," he continued. 

"The public sector will continue to be a drag on the overall economy until it is sorted." 

Stout warns the recent surge in the US market is misleading and that potential investors should not get caught up in the hype. 

"Foreigners have really not contributed to the recent rally, as for example the Fed (US Federal Reserve) is the only one buying US bonds at the moment, so we are in a very muted environment."

The five crown-rated Aberdeen Global World Equity fund is massively underweight the US, with an exposure of just 26.70 per cent. The average fund in the IMA Global sector holds 48.90 per cent.  

Aberdeen Global World Equity has produced top-quartile performance over three and five years, delivering 30.24 per cent over the longer period, while the sector has returned 4.96 per cent. 

Since the fund’s launch in May 2006, it has made 54.03 per cent, while the MSCI World Index and IMA Global sector have returned 36.29 per cent and 25.21 per cent respectively.

Performance of fund vs sector and index since 2006



Source: FE Analytics

Contrary to Stout’s view, Anthony Rayner, portfolio analyst at Darwin Asset Management, says a compromise will be reached over the fiscal cliff and that downside risk for investors will be limited.

However, he stresses that investors need to take a bottom-up approach to the US and focus on quality companies. 

"In terms of the fiscal cliff, the politicians are a bit mad but they are not crazy. If it is in the best interests of the country, then I think they will extend current polices," he commented. 

"However, we don’t see the fiscal cliff as a big issue for the fund, as we are positioned towards domestic cyclicals." 

However, Rayner says the £21.7m TM Darwin Multi-Asset fund’s allocation is not a result of political action in the US, but instead follows a "larger global trend towards protectionism with sovereigns playing to the electorate". 

"As we have seen in the most recent debate, (Mitt) Romney talked about protectionism a lot," he added. 

Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment, says recent monetary policy measures in the US make it a promising region for investors at the moment, particularly in comparison to the UK. 

"Forget plan A and plan B. What's working is plan USA," he commented. 

"The clear winner since the financial crisis is the US, where economic activity is well above its 2007 level and on a steadily rising path and where the housing market is beginning to show signs of life." 

"Both countries are engaged in aggressive quantitative easing. The big difference with the US is on the fiscal side where neither political party is expected to cut government spending significantly until the economic recovery is well established."