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Fund managers tip the US to lead global recovery in 2013

12th April 2013 Print

After a strong start for equity markets this year, the US is widely tipped to be the star performer for the rest of 2013, a Fidelity Personal Investing survey of leading fund groups has revealed.

Fidelity Personal Investing canvassed the investment opinions of 13 fund groups including Aberdeen Asset Management, Aviva Investors, AXA Framlington, HSBC Global Asset Management, Investec, Jupiter Asset Management, M&G Investments and Neptune. It found a general optimism about the outlook for global equities - in particular the US, which was highlighted as the leading investment theme this year by the majority of managers.
 
Richard Lewis, Head of Global Equities, Fidelity Worldwide Investment, summarises the view that the US looks to set to perform very strongly this year. He comments: "One of the key drivers for the US is the shale gas revolution which is resulting in low energy prices. This in turn is helping to re-industrialise the US. Furthermore the US has always been a champion of innovation and looks set to continue to lead from the front in this area which will further boost the economy."
 
Gary Potter, co-head, F&C multi-manager team, says there are a number of factors driving his team's positive outlook for the US: "Quantitative easing and low interest rates, which are likely to remain for the foreseeable future, combined with the energy revolution, manufacturing renaissance and a pickup in the housing market, have provided the ingredients for US GDP to accelerate into 2014."
 
Mark Burgess, Chief Investment Officer, Threadneedle Investments, adds: "We expect a relatively strong US economy, which should see significant benefits from likely energy independence. This favours dollar earners and US cyclical exposure in particular. We anticipate online retailing to grow further, at the expense of bricks and mortar, in a similar revolution to Wal-Mart's achievements in the 1990s relative to their traditional competition. We believe that consumption in the developing economies will remain robust, benefiting consumer staple companies, retailers, banks and luxury goods companies."
 
Jacob de Tusch-Lec, Fund Manager, Artemis Global Income Fund, concludes: "We've made good money, and want to re-invest that. Where? Asia and the US. We believe in a self-sustaining economic expansion in the US. We are playing the US recovery via a number of stocks, all catering to growth in US domestic demand: either via the housing market (MDC, a house builder), via general corporate activity (Ryder System, a truck leasing company) or via outsourcing and manufacturing activity (Macquarie Mexico Real Estate Management, a Mexican REIT). In our view these stocks offer attractive, growing and secure yields - with the potential for good capital growth."
 
With the ongoing economic and political uncertainty, income was also highlighted as a popular investment theme among fund groups.
 
Tom Elliott, Global Strategist within the Global Markets Insights Strategy Team, J.P. Morgan Asset Management, explains:  "With interest rates remaining negative in real terms, the focus is likely to remain on income in 2013. UK investors will continue to be forced to look beyond bank savings accounts and government bonds to supply the income they need. This means considering assets that might not previously had been considered by income investors such as high dividend paying equities, high yield bonds and emerging market debt. The best approach for those in need of income in 2013 may well be to consider the risk and go abroad."
 
For the full fund manager comments, please see below:
 
Mike Turner, manager of the Aberdeen Multi-Asset Fund: "The potential headwinds that the global economic recovery faces have started to come back into focus. A pause for risk assets is therefore understandable as investors have been reminded the public sector debt crises of Europe and the US will take years to resolve and growth is likely to remain muted for some time. But excessive accommodative monetary policy is supporting asset prices and the real crux is seeking out investments that benefit from robust growth and a ‘lower for longer' interest rate environment. Fortunately, there are opportunities for investors willing to do their homework. Selective companies with exposure to emerging markets, bonds issued by certain Asian and Latin American governments and infrastructure investment all have the potential to produce strong returns over the long term."
 
Jacob de Tusch-Lec, Fund Manager, Artemis Global Income Fund: "Europe is "impaired". Recent events in Cyprus show how fragile the entire edifice is. But selected European equities have been a relative - and successful - value trade for us over the last 12 months. That is why we are overweight there. That said, we are now reducing our weighting. We've made good money, and want to re-invest that. Where? Asia and the US. Capital from around the world is flowing towards Asia's higher levels of growth - and the economic data looks encouraging. Trade, investment, and consumers' spending have all accelerated. The region's engine, China, seems to be in ‘recovery mode'. Countries like South Korea and Taiwan, which are dependent on global trade, are looking better. So we have been buying Asian REITs, such as Mapletree Logistics, as we believe they will benefit from low interest rates and their asset-backed qualities when/if inflation starts going up. We also believe in a self-sustaining economic expansion in the US. We are playing the US recovery via a number of stocks, all catering to growth in US domestic demand: either via the housing market (MDC, a house builder), via general corporate activity (Ryder System, a truck leasing company) or via outsourcing and manufacturing activity (Macquarie Mexico Real Estate Management, a Mexican REIT). In our view these stocks offer attractive, growing and secure yields - with the potential for good capital growth."

Jeremy Leadsom, Sales Director, UK Financial Institutions, Aviva Investors: "Unsurprisingly we are seeing a continued demand for income. Combined with an increase in risk tolerance, this has led to a growing interest in equities, in particular equity income products. We expect our UK Equity Income Fund to continue to see inflows and are also seeing growth outside of the UK, in particular in our US Equity Income Fund.
 
"For those clients less sensitive to income and wanting a solution approach, we expect multi-asset funds to continue to increase in popularity. As risk-targeted funds aim to maintain risk within a particular range, they offer the strong benefit of allowing advisers to align investments to a client's attitude to risk from the outset."
 
Richard Peirson, Fund Manager, AXA Framlington Managed Balanced:

"In our view Global equities, which have already performed strongly this year, will remain in favour during 2013. With government bond yields very low, equities generally provide higher yields and look to be the asset class of choice. Leading companies, outside of the banking sector, generally have strong balance sheets and profits at record levels, suggesting that dividends will grow, capital may be returned to shareholders and take-over activity will also provide support. We are particularly attracted to the US economy despite its well known government debt issues. The rapid development of shale oil and gas is transforming the competitive position of companies and we believe that an industrial renaissance is underway. Despite minimal economic growth in the UK and Europe their equity markets still look attractive to us, particularly for their leading companies operate globally and look set to benefit from faster growth in the US and emerging economies."     
 
Gary Potter, Co-Head, F&C multi-manager team: "One of our investment picks for this year is the US. Quantitative easing and low interest rates, which are likely to remain for the foreseeable future, combined with the energy revolution, manufacturing renaissance and a pickup in the housing market, have provided the ingredients for US GDP to accelerate into 2014. Whilst the market has had a good run of late, and the  S&P 500 is close to reaching a record high, the US has lagged other developed markets, even since the current risk-on rally began in the middle of last year. Over the longer term this is particularly stark when comparing the region to emerging markets; over the last ten years, in US dollar terms the MSCI Emerging Markets index returned 376 per cent while the S&P 500 returned 99 per cent.  Now is the time to start looking across the Atlantic, as the upside growth potential is currently looking attractive as is the US Dollar."
 
Richard Lewis, Head of Global Equities, Fidelity Worldwide Investment: "The US looks to set to perform very strongly this year with some positive stories coming from the States. One of the key drivers for the US is the shale gas revolution which is resulting in low energy prices. This in turn is helping to re-industrialise the US. Furthermore the US has always been a champion of innovation and looks set to continue to lead from the front in this area which will further boost the economy. Whilst Emerging Markets have proven to be a big disappoint this year and lagged behind developed markets, mainly as a result of the weakened Yen hurting Korean and Taiwanese exports, I still remain positive for this region. Though Europe is locked in a policy jam, there remain some great companies which have exposure to the U.S and other global markets. This has helped the European equity market perform relatively well despite the political and economic backdrop."
 
Philip Poole, Global Head of Macro and Investment Strategy, HSBC Global Asset Management: "In our view global equity valuations still look attractive particularly on a relative basis, with the gap between dividend yields and real bond yields close to the highest level in decades. Corporate balance sheets and cash levels generally appear to be healthy and we believe equity valuations look reasonable. Also central bank policy generally remains extremely accommodative which leads us to continue to favour corporate assets such as equities and corporate bonds over core government bonds. In the US, equity valuations remain higher than most other developed markets, but we think US equities are still attractive because this valuation premium is likely to reflect relatively stronger domestic economic momentum. In emerging markets, we believe China is likely to be a key driver for equity markets in 2013 and our view is also that China will continue to grow at a decent pace for the next 5 to 10 years. Within the emerging market universe more generally, we believe the most attractive markets are China, Hong Kong and other North Asian markets such as Korea and Taiwan, as well as Russia." (21 March 2013)."
 
Max King, Multi-Asset Strategist and Portfolio Manager, Investec Multi-Asset Protector Fund: "Equity markets have had a strong start to the year and we believe that they will continue to move higher during the remainder of 2013. Although macro-issues continue to overhang markets, valuations remain reasonable and the momentum of downgrades to forecasts for corporate earnings continues to ease. Investors are returning to equities after a number of years of shunning the asset class.  In our opinion, risk-averse investors may want to consider maintaining a diversified portfolio of assets, thus spreading the risk associated with these short-term market setbacks.  We believe that a diversified portfolio should currently include equities, property, the higher yielding parts of the bond market and other income generating alternatives."
 
Tom Elliott, global strategist within the Global Markets Insights Strategy Team, J.P. Morgan Asset Management: "With interest rates remaining negative in real terms, the focus is likely to remain on income in 2013. UK investors will continue to be forced to look beyond bank savings accounts and government bonds to supply the income they need. This means considering assets that might not previously had been considered by income investors such as high dividend paying equities, high yield bonds and emerging market debt. The best approach for those in need of income in 2013 may well be to consider the risk and go abroad."

John Chatfeild-Roberts - Jupiter Independent Funds Team: "The last few years have taught us that despite significant challenges, it is possible to generate positive and real returns on behalf of our clients and we remain focused solely on achieving that aim. The key ingredients are patience and an ability to see through the noise to focus on the most important issues. Our chosen strategy of predominantly investing in funds via the world's best corporations, in areas of the world that are growing economically and don't have the European disease, is not without its risks. However, we believe that this is still the appropriate strategy at a time when uncertainty is on the rise again and inflation is a distinct threat. Literally anything could happen in Europe, in our view; we hope for the best but are prepared for the worst. Until the structural inefficiencies are tackled, we believe European economic growth is at best going to be sporadic. Inflation is a thief that visits in the night; by the time you realise it has robbed you, it is far too late to react; so much better to be prepared in advance."
 
Steven Andrew, manager of the M&G Episode Income Fund: "Just as at the start of 2012, equities remain by far the most attractive asset class.  And just as we experienced in 2012, this does not mean equity prices have to go up in a straight line. The experience of 2012 serves as a reminder of how important it is to have a consistent approach to investing, grounded in value, which equips us to respond to a volatile and ever-changing market price environment in a coherent fashion. Despite the recent gains in global equity markets, many regions remain priced to deliver very substantial investment returns.  So when the market offers us episodes of cheaper equity, we remain enthusiastic buyers. Conflagrations such as the worry over Cyprus and the wider question of Euro Area sustainability, or US fiscal troubles, or the behaviour of North Korea, or other as yet unknown global issues, will continue to exert an influence over investor behaviour and conception of risk - all of which fall under the category of 'topics about which we can know very little'!  Focusing on what's important: price and facts, strongly suggests that equity holders should expect significantly better returns than bond-holders over any reasonable investment time-frame. In terms of geography, my greatest allocation is to US equities - at 20% of the portfolio.  The evolution of the macro data in the US has been consistent with an ongoing recovery at a decent pace.  This is especially visible in the housing market where data have been stronger than market expectations over most of the past six months.  A more robust recovery becoming visible in the US than elsewhere, most notably in Europe, is consistent with observations of past financial crises and the extent to which subsequent recoveries are determined by the severity of write-downs accommodated in the downturn." 
 
Douglas McDowell, Head of Client Investment Strategies, Neptune Investment Management: "Global growth is reaccelerating. For the first time since the financial crisis, the US, China, Europe and Japan are simultaneously improving. We believe that global growth will continue to be stronger than expected with developing economies representing a growing proportion of global economic activity and the US leading the developed world.  With the crisis abating in Europe and the strength and sustainability of economic growth in China and the US, we are favouring cyclical industries geared towards global growth."
 
Mark Burgess, Chief Investment Officer, Threadneedle Investments: "Whilst we see some recovery in the global economy, it continues to be a tough environment for companies to operate in and it is therefore crucial to pick the winners that can do well against this backdrop. We have identified a number of themes that we believe will help us to select the better performers. We expect a relatively strong US economy, which should see significant benefits from likely energy independence. This favours dollar earners and US cyclical exposure in particular. We anticipate online retailing to grow further, at the expense of bricks and mortar, in a similar revolution to Wal-Mart's achievements in the 1990s relative to their traditional competition. We believe that consumption in the developing economies will remain robust, benefiting consumer staple companies, retailers, banks and luxury goods companies. In Europe, our theme is to focus on strong exporters rather than domestic companies hit by the depressed economy. Finally, we expect the search for income to drive investors towards high yielders, particularly where dividends are well covered by cash flow. (The views expressed above reflect our position as at 18 March 2013)."