As an investment house, Neptune’s stance of “bearish UK, bullish global” still stands, said Dowey, because of the sterling-related headwind to British companies.
“One of the features of the recent quarter has been considerable strength in sterling against the dollar,” said Dowey. “We think this will turn into a headwind for companies going forward because when they’re trying to compete for market share in America or compete domestically against US competition, that rise in sterling will be something of a hindrance.”
The same could be said for European stocks, given the euro’s recent gains against the greenback, he added.
Nearly 20% of the pair’s £197m income fund is allocated toward US equities, split across financials, industrials and tech titans, including Faang staple Apple.
The Neptune Income fund’s 33 holdings are evenly weighted, at approximately 3% each, a feature which Geffen said distinguishes it from peers, many of whom have high concentrations in a handful of companies to meet yield requirements.
The Neptune Income fund finished the first quarter of 2018 in negative territory at -5.41% but this was still better than the IA Equity Income sector average and the fund’s benchmark the FTSE All-Share, which ended the period down -6.18% and -6.45%, respectively.
Year-to-date the fund’s performance was sitting at -4.53% versus the IA UK Equity income sector’s -4.92% and FTSE All-Share’s -5.27%.
“Obviously a negative quarter is a negative quarter but we did manage to protect capital far more effectively than the index,” said Geffen.
“It’s been a challenging market to perform well in, and I’m obviously pleased that we have,” he added.
Hardly a tech correction
Despite having a decent weighting toward companies in the US, the income team isn’t concerned about the tech sell-off earlier this month nor the prospect of increased regulation in light of the Facebook data protection scandal.
US IT and software firms make up a decent chunk of the fund in aggregate at 14.99% and two of the names in its top 10 holdings – Microsoft (3.34%) and Apple (3.29%).
“The tech correction that we have seen is really hardly worthy of the name,” said Alastair Unwin, Neptune’s chief technology officer and manager on the US Opportunities and Global Technology funds.
“Facebook itself has been weak but Amazon is up 20% year-to-date, Netflix is up 50% and Google and Apple are flat. So, for all of the headlines and all of the noise, the real-world reality is that things are very much as they were last year.”
With regards to its major tech holdings, Microsoft and Apple, Unwin said the firms look good from a thematic and valuation perspective, respectively. Microsoft particularly appeals, given its “duopoly” with Amazon in the cloud space and the fact it is “a major arms dealer in the AI world”.
Trade war
While Dowey, admits a “full blown trade war” would be bad for global growth, he added this is not the group’s base case scenario.
“We have seen relatively small measures and countermeasures largely targeted between the US and China. Those kinds of measures are ultimately limited by the trade that occurs on a bilateral basis between those countries.”
The “real dangerous scenario” that could offset synchronised global growth is if tariffs were brought in in a global context, a prospect Dowey thinks unlikely.
“It’s not the base case but we’re obviously monitoring that because it is probably one of the key risks for the global economy right now,” he said.
On Tuesday Chinese president Xi Jinping reiterated his commitment to opening the economy further and lowering import tariffs, in a move which some speculate was an attempt to defuse tensions with the US.
However, news also broke that China had filed a complaint with the World Trade Organisation over US duties of 25% and 10% on imports of steel and aluminium.
The dollar shot up against the pound and the euro during early morning trading but fell back again hours later, leaving the euro up $1.23 to the $1 and sterling at $1.42 against the green back.
