Skip to the content

Premier’s Simon Evan-Cook: Why we’re putting ‘America last’

01 February 2017

The senior investment manager at Premier tells FE Trustnet why he continues to have almost no exposure to US equities, despite many industry commentators remaining bullish on the country.

By Lauren Mason,

Senior reporter, FE Trustnet

US equities are more expensive than they were since before the financial crisis and, despite positive market sentiment on the country, it is best avoided, according to Premier’s Simon Evan-Cook 

While the MSCI World index has a 60 per cent allocation to US equities, the senior investment manager holds just 5 per cent in Premier’s five crown-rated Multi-Asset Global Growth fund and doesn’t intend on increasing this exposure any time soon.

This is despite the recent election of Donald Trump as president, which many industry commentators believe will bolster the US market through increased infrastructure spending and corporate tax cuts.(pictured).

“We call this our ‘America Last’ policy, in the sense that we’re quite happy with almost everything – certainly on the equity side – other than US equities,” Evan-Cook said.

While a 5 per cent weighting in direct US funds is very low, it must be pointed out that the Premier Multi-Asset Global Growth fund – when neutrally positioned – has 15 per cent weightings in US, UK, European, Asian, Japanese and emerging market equities respectively.

This is because the management team dislikes the thought of contending with “benchmark pressure”, especially given the MSCI World index has large weightings in countries that Premier doesn’t operate in.

Since the Premier multi-asset team took to the helm of the fund in 2012, the S&P 500 index has significantly outperformed most other major indices and has comfortably doubled the FTSE 100 over this time frame.

Performance of indices since July 2012

 

Source: FE Analytics

Despite this, the firm’s Multi-Asset Growth fund has still managed to perform broadly in-line with the MSCI World index since Evan-Cook, Ian Rees, David Thornton and David Hambidge have run the portfolio.


“When we took that fund on which was at the beginning of July 2012, the one thing we didn’t want to happen was for US equities to give tearaway returns and outperform everything else by a very long way, which is exactly what happened over the next four years,” Evan-Cook said.

“That has been an amazing headwind for the fund, it’s really been a case of swimming upstream since we took it on. When that turns, which we think it will, we’re in a good position to have avoided some really expensive-looking US equities.

“We’re waiting for this headwind to become a tailwind; we just don’t know when it will be. This view is to do with valuations, it has nothing to do with Donald Trump although that is just a bonus in terms of avoiding the US.”

While many investors were cautiously positioned during the first half of 2016, brightened prospects for the US economy and the increased likelihood of fiscal expansion led to a sharp market rotation from quality to value.

The US market has been the main beneficiary of this and is up 12.45 per cent over the last six months, outperforming other major indices which have also performed strongly over this time frame.

Performance of indices over 6months

 

Source: FE Analytics

Not only does Evan-Cook believe the US equity market has rallied too far over recent months, he believes this trend started several years ago and remains an issue.

“The way we judge how far markets are getting ahead of themselves is valuation-driven,” he said.

“The big one for us is the 10-year cyclical P/E ratio which looks at the average earnings over 10 years, so it therefore gives you a more tortoise-like appreciation of where you are. It has only been more expensive on that basis in 1999 and 1929.

“It is now more expensive than it was in 2007 before the financial crisis which, to us, is a big reason not to be in it.

“That doesn’t mean there’s a crisis looming. It may just mean it carries on becoming more expensive – which would be bad for us, it may mean that it grinds and slightly underperforms for seven years while everything else catches it up – which is our preference, or it might mean that it has a nightmare.”

To counteract potentially high fees charged by active US equity funds – many of which underperform their benchmarks given the market’s maturity and efficiency – some investors opt for passive funds for exposure to the market.


However, Evan-Cook would rather avoid the space generally and look elsewhere. One area he has been bullish on for a while, for instance, is emerging markets.

“One of the subjects I rant about is passives. We are possibly the most active of multi-managers – we are passionate believers in active managers, we only invest in the most active of these managers,” he said.

“For us, there has not been a plethora of amazing US equity managers which is a good reason for us not to hold US equities.

“It’s not a reason to say ‘I can’t find anything so let’s hold a passive’. Maybe we would have a difficult choice if US equities looked fairly cheap and we could find a good active manager, that might be the ‘never say never’ scenario.

“That said, our US equity manager has been doing a great job over the last couple of years, but we just think there are better returns to be had from other areas.” 

While emerging market equities performed well in 2016 following a lacklustre five years relative to developed markets, Evan-Cook says there are still plenty of opportunities in the area as active managers have the scope to significantly outperform the index, given the large and varied opportunity set.

“In the global growth fund, having ridden out this nightmare period where US equities have been the only game in town, we’ve had active emerging market managers that have given us incredible returns above their benchmarks to keep up pace with US equities. That has really helped us out,” he continued.

“If we’d have bought passives in emerging markets, we would be a long way behind.

“It’s also a case of avoiding China and commodities, that’s really where active managers have been able to add a lot of value in the past.

“We like emerging markets, still. Valuations look good there, certainly relatively compared to the US. Nothing is obviously cheap, but our suspicion is, for a long-term investor who only has one shot to place their money today and they could only take it out in seven years’ time, emerging markets would be a very good place to be.”


 While the manager tends to buy into global emerging market funds as opposed to region-specific funds (he believes regional allocation should be left to the emerging market specialists), he owns Stewart Investors Latin America, which has five FE crowns and is managed by Dominic St George and FE Alpha Manager Tom Prew.

Since Prew took to the helm of the fund in 2013, it has returned 18.52 per cent compared to its benchmark’s return of 2.7 per cent.

Performance of fund vs benchmark under Prew

 

Source: FE Analytics

“It’s not the punchiest Latin American fund but it is a fund that completely avoids the benchmark and invests in good investments,” Evan-Cook said.

“It has done very nicely and we still hold that. We’re not against holding single-country funds in emerging markets, but for us it’s the manager first.

“If we find an incredible manager and they happen to be operating in just one market then that’s viable, we don’t take a view and think we love China, for example, and try and find the best China fund out there.

“We have to have the right manager first, then you decide whether the country is worth investing in.”

Other examples of emerging market managers he likes include Prusik Asian Equity Income’s Tom Naughton, M&G Global Emerging Market duo Matthew Vaight and Alice de Chamoy, and Charlemagne Magna Emerging Markets Dividend’s Julian Mayo and Mark Bickford-Smith.

Managers

Simon Evan-Cook

Editor's Picks

Loading...

Videos from BNY Mellon Investment Management

Loading...

Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.