With money flooding into European equities following the introduction of quantitative easing, and with disappointment in America’s economy, many investors are wondering if they should stick with US equities.
For some fund managers there are a number of factors that keep the asset class in favour.
At JP Morgan Asset Management (JPMAM), Christian Preussner, US equities chief client portfolio manager, says the impact of energy on earnings and consumers should be considered. He recommends a focus on companies and sectors that are meaningful beneficiaries of lower oil prices, such as airlines, and highlights the fact that the energy sector accounts for only around 3% of new jobs created since 2010, so should not halt momentum in the US jobs market.
Marino Valensise, head of Barings’ global multi-asset group, says the reduction in oil-related capital spending is likely to be more than offset by the positive impact of a cheaper oil price for American consumers. He notes one theory is that this is putting $250 billion (€226.7 billion) in consumers’ pockets, which they will spend.
“Looking at retail sales and other consumer data will be crucial to understanding if the economic slowdown of early 2015 has only been a transitory phenomenon, as we believe. The US Federal Reserve will be closely watching the same releases,” he says.
Joost van Leenders, chief economist in BNP Paribas Investment Partners’ multi-asset solutions team, also says the US economy is “set to bounce back from a soft patch in growth”, which was partly driven by adverse weather conditions at the start of the year. He says that the Purchasing Managers Index should improve, despite a recent fall due to dollar strength and US energy sector weakness.
“While manufacturing is struggling, the fundamentals for consumption remain solid,” he says.
Stewart Robertson, senior economist at Aviva Investors, says that despite disappointing performance from the US economy in the first quarter, he is also positive for the coming months.
“The Institute of Supply Management industry surveys, which have been largely reliable indicators of key turning points in the economy, are still pointing clearly to higher output in 2015.
“We expect growth of close to 3% this year when compared to 2014, helped by a buoyant labour market with the unemployment rate set to fall towards 5%.”
Another factor in favour of US equities for JPMAM’s Preussner is valuations, which he says are “not cheap but not expensive”.
“We think valuations are in fair territory … At 17x price to earnings relative to a long-term average of about 16x, we don’t feel this is overly stretched, particularly relative to bonds, which continue to look extremely expensive.”
©2015 funds europe