Coombs shares their positivity on IT, but – somewhat unsurprisingly – it is financials that he tips to hold firm against rising interest rates.
He said: “On a three-year view we like technology, ex-pharmaceutical healthcare, consumer discretionary and financials – the latter will be the least negatively impacted by an interest rate rise.”
“While financials is not a growth sector like the other three, it should outperform in a rising interest rate environment. Naturally the rest of the market knows this so there is a bit of that in the price, but we made the call over a year ago and are not changing our stance.
“We would only alter our view if the interest rate curve steepens, in which case we would go underweight US. Peak rates for this cycle looks as though they will be 2-2.5%, but if that went to 3.5-4% then our view would change significantly.”
Catching the red-eye
So, if you are convinced that the US still deserves a big place in your portfolio, in which fund should you make the transatlantic flight?
“While the US is not overvalued, it is very much up to speed with events,” said Tony Yousefian, investment consultant and fund analyst at Abermarle Street Partners. “The market as a whole has defensive characteristics, and when the equities market goes down the US tends to hold up pretty well. Because of those safety features we recommend a degree of exposure to the US, but would certainly not recommend being overweight.
“Investors should avoid high-yielding funds, which tend to carry ‘bond proxies’, because a US interest rate rise is now a matter of ‘if’ not ‘when’. Stockpicking managers are absolutely crucial – particularly those who target growth-orientated stocks that will benefit from an economic growth environment. That said, there may now be a bit of a summer lull kicking in and investors should maybe not go in straight away.
Yousefian continued: “I would recommend either Artemis US Equity or, in particular, US Select, both of which are run by Cormac Weldon. However, if investors are looking for longer-term returns I would recommend Stephen Moore’s Artemis US Absolute Return, which is a 50-50 fund. Both managers have a good track-record from their time at Threadneedle [now Columbia Threadneedle] and have added a lot value for their investors.”
So it seems that even in the wake of a wave of money flooding out of the US and washing up on European shores, by selecting an appropriate boat and paddling up the right creek, investors can dig their oars in against the current and hope to land a marlin or two.
