Central banks have achieved what they set out to do with QE, increasing asset prices and valuations along with it.
But based on the cash generation of companies compared to government bonds and credit, commodities and the rental yields of real estate, there are still opportunities in US equity, according to the duo.
“The way companies use cash has improved significantly from 15 years ago, we saw horrible uses of cash generation back then. Now through improvements there is more free cash flow and allocation which is reasonably powerful,” Moore said.
He added that the fundamentals in the US have improved despite decent GDP figures.
“We don’t spend much time looking at GDP, it’s a lagging economic statistic.”
In Weldon’s view, the US is not at risk of deflation “unless the rest of the world goes to hell in a handbasket”.
Stock picks
Investment areas they have been researching include tech, financials and energy. Tech is an attractive sector, according to Weldon, adding that the funds will have a “chunk in new tech”.
Meanwhile the crisis got rid of a lot of debt in financials which, despite higher valuations, still appeal to fund managers.
However the housing market in the US has disappointed, Weldon said.
“It will improve over time as credit is cautiously extended to consumers as unemployment improves.”
Weldon is also positive about the energy sector:
“We had time to do the basic reading about fracking, the growth rate of oil and gas productions and we are reassured it’s the real deal and will drive the US economy.”
Moore said: “Big oil is the cheapest it’s ever been. But it’s not cheap for no reason. It is all about the perceived potential growth rate where there is disagreement. Smaller energy companies are already looking attractive in the market.”
Decision-making
When it comes to choosing the portfolio assets, the team’s investment choices start the moment a decision is made on what stock to research.
“The key decision each day is whether to research stock A or stock B, focusing on one or the other to understand valuations,” Weldon said.
Moore added: “Investment is about decision-making. The key thing is differentiating between exactitudes, such as the incremental cash flow for a stock, and inexactitudes, which is for example how will the company retain its clients. We want to get the exactitudes right before the inexactitudes.”
Since announcing their departure from Threadneedle Investment in January earlier this year, Weldon and Moore have had time to step away from the market and reassess their investing strategies. The duo’s team includes William Warren on the fund manager side, and four analysts.
“This is an opportunity to build and improve on what we’ve done in the past. Since 6 May we have sat down and been thinking about what we’ve done in the past and refining those actions. It’s not often you get time away from the markets and think how to do it,” Weldon said.
The quintet of US focused funds are the US Equity Fund, the US Select Fund, the US Smaller Companies Fund, the US Extended Alpha Fund, and the US Absolute Return Fund. The funds are expected to launch in mid-September with the exact date to be announced.
