Emma Wall: Hello and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Felix Wintle, Manager of the Neptune US Opportunities Fund.
Hi, Felix.
Felix Wintle: Hi, Emma.
Wall: So, people have been saying it's difficult to find investment opportunities in the U.S. market, but your fund is 100% invested. So, you probably disagree with that?
Wintle: I would disagree with that, yeah. We find opportunities abound in the States. One of the lucky – I consider myself very lucky to be a U.S. investor, because there's always something that you can find to invest. There's lots of themes, lots of great companies and the same is true today. Clearly, there's lots going on at the macroeconomic level with commodities falling aggressively over the last 12 months, for example. But that notwithstanding, there's plenty going on in other sectors, healthcare, discretionary that we find really exciting. So, yeah, there's (now) positive ideas.
Wall: And your fund is unconstrained; that means that it looks very different from the benchmark and that's a very positive thing because it means you can move throughout the market scale and throughout, as you've mentioned there, sectors. Where are you seeing the opportunity at the moment? Is it in the small caps, mid caps, large caps?
Wintle: Well, we tend not to look at too much by market cap but rather by sector. So, our investment process is really about finding opportunities from our sector research. We've got actually a very high conviction view at the moment in terms of where you should be invested and we have no energy, we have no utilities, we have massively underweight industrials and materials, but have big overweight in healthcare, consumer and technology and that's the part of the market we really feel passionate that people should be concentrating on.
And indeed, I know lots of investors look to track us when they look to get their U.S. exposure. We really feel strongly that now is the time not to be and track us because, as you mentioned, if you compare our top 10 holdings with the S&P top 10 holdings, they look completely different.
And thus far only Apple is a one stock in common. But there's lots in there in that S&P top 10 which I just don't think you want to be owning, stocks like Exxon, stocks like GE, stocks like AT&T, very old, maybe they are old industries really, sort of yesterday's industries and we feel very confident that you want to be selective now and not just have a passive approach.
Wall: Because the market has changed. It's not like the first couple of years as just S&P 500, indeed the FTSE 100 started to rally where basically everything came up together. I mean, 2013 was an incredible year for you, 30% something returns. Now, the market has changed. It is going to be more choppy. It's going to be more volatile and it's just much about leaving out the stuff you don't want as picking the winners?
Wintle: I think that's exactly right. It's funny. We went through a period – you're absolutely right – '12 or really from when QE started, so roundabout – I mean particularly 2010, '11, and '12 what we found was really when QE was at its height and what happened was QE was the rising tide that lifted all boats.
So, everything went up the same pace and everything went down in the same pace and it was a very – quite a volatile time. But being selective at that time didn't really add much value because what you really wanted to do is, just have exposure rather than be selective because the stock correlations were very high.
As you rightly say, so that's now changed. We're in the new stage of the market, new paradigm for investors and that's really different by one QE ending – well, QE ended last year, as we know, about 12 months ago. And as we look forward, we've now got rate rises. We haven't had a sustained rate rising cycle since the early 90s. So, what does that mean and are people prepared for that? And our conclusion on what that means is you've got be in sectors which can handle a rate rise.
You look at sectors which are really struggling, like commodities, and we know that with the falling commodity price and a rising cost of capital that's a disaster for these stocks. For example, in the U.S., Caterpillar recently had a big corporate restructuring, stock was down 10%. Glencore in the U.K. is a perfect example of that, very levied commodities, very high leverage, their debt (passed) twice their market cap and that stocks is down, what is it, 77% year-to-date, something awful like that. So, it's very, very real and this new market backdrop creates winners and losers and that's manna from heaven haven for active managers.
Wall: Felix, thank you very much.
Wintle: My pleasure.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
