Joanna Shatney, who has headed up the department for the past two years, said the S&P 500 is still at the low end of its historical valuation curve and added that while it has been trading at a premium relative to other markets this year, this is nothing new.
In defence of the fiscal cliff concerns dogging the US market at the moment, she said that if the economy tipped over the cliff it would be a great buying opportunity as the market capitulated.
Shatney admitted the US had failed to deleverage at the fiscal level, but said other developed countries had even bigger issues because while they have not sorted their fiscal deficits either, nor have they deleveraged other vital sectors of their economies.
The US, she said, had tackled debt at the corporate level (most importantly within banks) and had started to reduce it in the consumer level, while the UK and core of the eurozone had brought down consumer debt, but had not recapitalised the banks sufficiently.
Earlier in November at a Schroders adviser conference, however, chief economist Keith Wade had an entirely different view on the situation.
From an asset allocation perspective he said the firm had started to reduce its overweight to US equities to add to exposure in Europe and emerging markets.
“We had been overweight the US for the last couple of years but we’re now scaling that back because of fiscal cliff worries and because of the way the US has performed, which has been extremely good,”
He added: “We are working on the assumption there is a compromise before the end of the year [but] we have learned that politicians like to take things to the brink.”
In response to such a position, Shatney said her thought process was slightly different and explained that in trying to get investors out of bonds and into equities it was better to look at longer-term returns potential, which she sees in US equities.
“European equities are cheap and there will be a rebound, but I do not think that is anything more than a trading opportunity. I have only been head of this department for two years and for both of those years I have been bullish on US equities, but I hope in the next recession that will not be the case.”
Innovation, a return of manufacturing to the motherland and a flexible labour force are other factors she cited to support the long-term US equity story.
James Rainbow, director of marketing at the firm, defended the disparate views saying Schroders had always described itself as “a broad church of investment ideas”.
