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Still value in US, says Artemis’s Weldon

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01/07/2014
The US stock market is as cheap as it has ever been relative to corporate bonds, says incoming Artemis US manager Cormac Weldon.

Weldon, head of the new 7-strong US team at the group, says that falling energy prices, an improving balance of payments and a manufacturing renaissance should all act to support the US economy. The ex-Threadneedle star adds that valuations may look higher in the US market, but the prospects for corporate earnings are good.

Artemis plans to launch five new funds for the team in September – including a mainstream US equity fund, a long/short fund and a specialist smaller companies fund. Weldon built a strong track record at Threadneedle, showing particularly strong performance in weaker stock market conditions.

In the new funds, technology, energy and financials will be particular focuses. Weldon believes there remains value in ‘old technology’ companies, saying that while they are facing challenges, they continue to generate cash that should enable them to meet those challenges.

Financials are benefiting from a climate of increased prudence, while the big oil companies have been left behind in the recent market rallies and are improving their businesses.

Weldon admits that some active funds have struggled to beat passive funds in the US market, because it is more ‘efficient’ than many other markets, but adds that tracker funds are unlikely to offer the same protection in falling markets and the US market still has opportunities for prudent, stockpicking managers.

Weldon says his one concern is the US housing market, which has not recovered as expected. It has been held back by the weight of student debt among natural first time buyers in the 25-34 age bracket.

Weldon’s enthusiasm is not universally shared. Jason Hollands, managing director, business development & communications at Bestinvest, says he is ‘pretty cautious on US equities at the moment: “We believe valuations look very stretched while the economic data has been patchy – real GDP contracted in Q1.

“With that in mind, one of our favoured US equity funds has a strong value bias: the GAM Star GAMCO US Equity fund. This is sub advised to veteran investor Mario Gabelli of GAMCO who are based in Rye, New York Satte…He targets cheap companies where he believes there is a catalyst for a re-rating. Although this fund has a short track record, Gabelli’s is a long and illustrious one.”

Hollands believes that another interesting area is the nascent subsector of US equity income funds: “While dividends have long been a major feature of the UK equity market, historically many US companies have not focused on dividends, tending to use cash for share buybacks. However, in a world of low yields and where very little interest is being earned on large cash balances, more and more US companies have begun paying dividends or raising them. For a fund which focuses on higher yielding US stocks we like the Aviva Investors US Equity Income II fund.”

 

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