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Three funds for investors worried about the US mid-terms

05 November 2018

Chelsea Financial Services’ Darius McDermott highlights three global funds with a US bias for investors concerned about the outcome of the US mid-term elections.

By Rob Langston,

News editor, FE Trustnet

T. Rowe Price Global Focused Growth Equity, Fidelity Global Special Situations and Guinness Global Equity Income are three funds worth considering for investors worried about the US mid-term elections, according to Chelsea Financial Services’ Darius McDermott.

With the US electorate set to go to the polls tomorrow, it remains to be seen whether US president Donald Trump’s Republicans will gain seats or whether a backlash against his divisive administration will hand control of Congress to the Democrats.

McDermott (pictured), managing director of Chelsea Financial Services, said: “If the Democrats won back a number of seats and, importantly took control of one of the houses, it could have meaningful implications for fiscal policy but, perhaps more importantly, foreign relations, which have been thoroughly tested by president Trump.

“However, a Democrat majority could lead to more uncertainty in the form of a possible impeachment and potential government shut-downs.”

He added: “It is also worth noting that the one promise Trump has kept is to put American first. This sentiment, and the fact that his tax cuts are still being felt in a positive way, could mean he gets more votes than expected. Voters are more likely to support him if they are feeling better off.”

Despite the uncertainty, there are reasons that investors in US markets can continue to feel bullish given the strength of the economy; the fact that US companies have some of the highest returns on capital in the world; and earnings are still growing.

However, not all the signs are positive, said McDermott.

The unwinding of 10 years’ worth of quantitative easing has removed one of the biggest pillars of support for the markets. Additionally, valuations remain high even after the most recent sell-off in markets witnessed during October.

Furthermore, said McDermott, US companies have taken on more debt just as interest rates begin to rise, increasing the cost of borrowing and putting further pressure on corporates.

“Taking a direct bet on the US right now may not be the best move,” said McDermott. “But there are a number of global equity funds that have a decent weight to US companies, while at the same time being selective.”

Below, McDermott highlights three global equity funds that investors may want to take a closer look at.


T. Rowe Price Global Focused Growth Equity

The first fund on the list is T.Rowe Price Global Focused Growth Equity, which has a 63 per cent weighting to US stocks.

The $1.3bn five FE Crown-rated fund is headed up by FE Alpha Manager David Eiswert and invests in a diversified portfolio of global equities with the potential for above average and sustainable rates of earnings growth.

“The manager builds a portfolio based on key themes to create a global equity fund with considerable potential for delivering long-term returns across all market conditions,” said McDermott.

Performance of fund vs sector & benchmark under Eiswert


Source: FE Analytics

Since Eiswert took the reins in September 2012, the fund has delivered a 176.77 per cent total return compared with a 107.87 per cent gain for the MSCI AC World benchmark and a 92.23 per cent return for the average IA Global peer.

US names dominate its top-10 holdings including largest position, healthcare firm Becton, Dickinson & Company, Google-parent Alphabet, bank JPMorgan Chase, and utilities company Sempra Energy.

T. Rowe Price Global Focused Growth Equity has an ongoing charges figure (OCF) of 0.92 per cent.


Fidelity Global Special Situations

Next on McDermott’s list is the £2.7bn four FE Crown-rated Fidelity Global Special Situations fund, which has 55.4 per cent of its portfolio invested in US stocks.

Run by FE Alpha Manager Jeremy Podger, the fund takes a valuation-focused approach to identify companies with the potential for significant share price appreciation.

This may be because the valuation is too low, fails to recognise the future growth prospects of the company or both.

As such, the holdings fall into three buckets: ‘corporate change’, ‘exceptional value’ and ‘exceptional businesses’.

“This is another fund designed to deliver consistently throughout all market conditions,” McDermott explained. “It has a solid but flexible process.”

Although the largest position is in London-listed oil giant Royal Dutch Shell, Podger’s top-10 is dominated by US names such as tech firms Alphabet, Microsoft and Apple.


Under Podger – who joined Fidelity International in February 2012 and took over responsibility for the fund from the following March – Fidelity Global Special Situations has delivered a 150.06 per cent total return, compared with a 107.92 per cent gain for the MSCI AC World and a 90.07 per cent return for the average IA Global peer.

The fund, which also has the ability take short positions, has an OCF of 0.92 per cent.


Guinness Global Equity Income

The final fund on McDermott’s list is a different type of fund than the previous two given its equity income strategy.

The $547.3m Guinness Global Equity Income fund is managed by Ian Mortimer and Matthew Page; it has a 42.8 per cent weighting to US stocks.

The equally-weighted strategy invests in a concentrated portfolio of 35 stocks, with the managers taking the approach that dividend payers will outperform over the long term and dividend growers more so.

They also believe that dividend-paying companies can protect against inflation over the long term.

“The managers focus on how well and consistently a company can use money to generate returns,” said Chelsea’s McDermott. “They also have substantial freedom to entirely avoid countries and sectors they don't like. The one-in, one-out philosophy means the fund stays up to date with the managers’ best ideas.”

US names among the portfolio’s top-10 holdings include semi-conductor company Broadcom, aerospace firm United Technologies and IT company Cisco Systems.

Performance of fund vs sector & benchmark since launch


Source: FE Analytics

Since launch at the end of 2010, the fund has delivered a total return of 119.63 per cent compared with a 125.5 per cent gain for the MSCI World index and an 88.16 per cent return for the average IA Global Equity Income sector fund.

Guinness Global Equity Income has a historic yield of 2.6 per cent and an OCF of 0.99 per cent.

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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.