Clinton vs. Trump - Six reasons to favour US equities, whoever wins next week
Tom Stevenson, investment director for Personal Investing at Fidelity International, highlights how, irrespective of who wins the US Presidential elections, the outlook for US equities is likely to remain positive:
1. Size and strength: “No other market can compare with the US in terms of size. American companies represent over half the value of all companies listed in the MSCI All Country World index, the most comprehensive measure of global equities.
“American companies are also leaders in many of the sectors that can be expected to drive global growth in future years. For example, it has dominated in innovation-led sectors such as technology and healthcare.”
2. Greater stability: “Not only is the US market the largest and focussed on high growth areas, it is also less volatile than other markets. This means that when the market goes through its inevitable ups and downs, the swings are less pronounced for the S&P 500.”
3. The power of consumers: Consumption continues to be a key driver of the American economy. At 68% of US GDP in 2015*, personal consumption is massively important and is well supported by low unemployment, low energy prices, a healthy housing sector and positive wage growth.”
4. Structural advantages: “America has a number of structural tailwinds that support the case for its equity markets. The most important of these is the country’s lead in innovation. US research and development spending is nearly a quarter of the global total.
“Furthermore, eight out of the ten biggest technology companies in the world are American.”
5. A favourable environment: Other positives for the US include a favourable business environment, a powerful energy sector – the country is close to achieving energy independence – and very strong demographics.
6. A fair price? “So, the only question is whether US equities are worth their high price tag. Certainly American shares have above-average valuations but they are not excessively high by historic standards. At the same time, company balance sheets are strong, with manageable debts and, in some cases, high cash reserves.
“Of course, profits will need to grow to justify today’s valuations. But, assuming growth continues, the case for the world’s biggest and most dynamic economy remains compelling.”
Three funds for investors looking for exposure to the US:
BlackRock US Opportunities Fund “Led by Ian Jamieson who has managed the US Opportunities Fund since July 2008, the team has been employing the same philosophy and process since 1999. The team takes a bottom-up approach to industry and company research, with a close focus on risk management. The aim is to understand industries and companies that can benefit from trends, with a focus on smaller and mid-sized companies.
Fidelity American Special Situations: “The fund is run by Angel Agudo, who has 11 years of industry experience. Angel is supported by Fidelity’s US research team, which features 17 analysts, as well as the company’s global research network. Angel has a high-conviction approach, holding just 30-50 companies, with a focus on underperforming businesses where other investors don’t expect a recovery. He looks for companies at different stages of the recovery process, as this can help produce returns across different market conditions.”
Old Mutual North American Equity: “The team at Old Mutual stands out for its highly innovative and systematic approach to investing. Two main characteristics distinguish this group’s quantitative approach from others in its peer group, namely the dynamism of the team’s model and the uniqueness of its stock selection strategies. With a nod to the aphorism that ‘history doesn’t repeat itself, but it rhymes’, the model has the ability to read the current state of the equity market and allocate risk in the stock selection strategies most likely to outperform.”