In April this year Artemis obtained Threadneedle’s US equities desk. Fund managers Cormac Weldon and Stephen Moore – along with five equity analysts – left Threadneedle after a combined history at the firm of more than 30 years, to set up an entirely new US equities desk in St James.
At Threadneedle, the team’s American Fund earned a Bronze Rating from Morningstar analysts, although following their departure it has been moved to Under Review.
This week, Artemis revealed that the team will be launching five funds in September, three long-only equity funds; lower risk, higher risk and smaller companies, and two long-short funds; one with 150 holdings, and one higher conviction fund.
While the team has a proven track record, there have been concerns raised about the timing. Artemis has been known for its cautious stance with new fund launches, with 15 funds launched over the last 15 years. Launching five in one day, into a market that has more than doubled over the past five years seems risky.
“Equity prices have risen,” admitted Moore. “Central banks got what they wanted – they usually do. They strove for higher asset prices and valuations have gone up with them. But that is not to say that US equities are now expensive across the board.”
There is a lot of negativity surrounding US equities. While few retail investors had the brave contrarian mind-set, and the foresight, to allocate large swathes of their portfolio to US companies in 2009, now every man and his dog it calling the top of the market.
Mark Dampier of stockbrokers Hargreaves Lansdown says that while there is no denying the market has rallied, to be bearish on US equities is to be bearish on all markets.
“I am positive on equities as an asset class and therefore I am positive on the US market. Those advisers who are calling the top – are they taking all their clients’ money out of equities? Because there is little diversification these days, look at what happened in 2008, everything fell. If Wall Street falters, there is no point being in emerging markets or Europe,” he said.
The naysayers refer to abysmal GDP growth figures for the first three months of this year. Moore insists this was a one-time issue, caused almost entirely by the bad weather, and leading economic indicators such as wage growth already point to a recovery.
That is not to say that all sectors will bounce back now the sun is shining. Weldon admits the housing sector is lagging – “houses can’t be built in 15ft of snow” – and thanks to the rising student debt among 24 to 33 year old Americans, first time home buyers are struggling.
A law graduate in 2003 would have acquired on average around $85,000 of debt, but one graduating a decade later owes around $125,000 – severely impeding their ability to borrow a mortgage.
There are enough opportunities for the team to pick from, says Weldon. He likes energy and manufacturing; the shale gas boom which in turn will filter down to “all businesses that use a lot of energy”.
“There will be much more industrialisation; refineries, infrastructure, fertiliser companies will all benefit,” he said. “The whole of the US is not going to become Texas but there will be changes.”
The energy story is not new however. Shale gas discoveries first gave the average US family has received an effective tax cut in the form of cheaper fuel back in 2012. So surely by now share prices will reflect the benefits of those discoveries?
Weldon says not; “The large US energy companies were off drilling in the Artic, the North Sea, Mexico and in talks with Brazil, while smaller companies were walking up to the potential literally right under their feet.”
There is no denying that this disconnect will not last long however. US markets are more efficient than their emerging counterparts – prompting many investors to choose passive products for their regional exposure. Barclays Stockbrokers are sitting on $2 billion of US equities in passive products –finding an active manager that can beat the market, and by more than their fee, is hard.
Moore is confident that their past performance speaks for itself, having protected investors from significant losses during the downturn.
“We are stock pickers,” he said. “If we were invested now we would have higher technology allocations, and chemical plants. We have an eclectic portfolio and benefit from high frequency trading blips where passive investors see losses. We earn our fee.”
