trusts lift us exposure as election looms

Investment trusts have increased their exposure to the US over the year to date, expecting to see continued improvement on both company and macroeconomic levels.

trusts lift us exposure as election looms


Figures published by the Association of Investment Companies (AIC) show the average member in the Global Growth sector had 26% of their portfolio in the US at the end of September. This is an increase from 22% at the start of the year.

Alliance Trust is the fund that has raised its exposure the most, adding 13 percentage points over the opening nine months of the year to take its allocation to 33%.

Matthew Strachan, head of North American equities at Alliance Trust, highlighted the improved data coming out of the US, especially housing and unemployment figures, and the “general resilience” of the country’s businesses.

“Since we reorganised the portfolio earlier this year, we have been increasing our exposure to the US and over £800m, or just under 40%, of the portfolio is now directly invested in the US,” he added.

“We are particularly optimistic about the implications of growing oil and gas production, using new technology to unlock the potential of shale deposits across America, which we see as having far-reaching implications for energy security and cost, with knock-on effects into many other industrial sectors.”

Other sizable move include Edinburgh Worldwide increasing its US allocation by eight percentage points to 49%, EP Global Opportunities moving from 15% to 22% and Mid Wynd International going from 10% to 17%.

Garrett Fish, manager at JPMorgan American Investment Trust, commented: “In recent weeks the equity markets have responded very positively to both the actions of the Central Banks in Europe and the United States, and the economic news, which in aggregate has beaten expectations.

“The equity market has been switching back and forth between feeling glass-half-empty to glass-half-full; currently the glass-half-full view prevails.”

But factors that could threaten this scenario include the US’ presidential election on 6 Nov and the looming ‘fiscal cliff’, which threatens to plunge the world’s largest economy back into recession.

Fish added: “We expect volatility to increase in the short term as the market focuses on the outcome of the forthcoming Presidential election and the fiscal cliff.

“The Vix index – an estimate of future volatility – is currently very low, which is somewhat at odds with the popular perception. In the past five years when the Vix has been this low, volatility has surprised on the upside in the short term.”

Strachan expects to see president Barack Obama returned to the White House next month, albeit by a close margin, and predicts the country will manage to avoid some of the worst potential consequences of the fiscal cliff.

“After the elections both the fiscal cliff and debt ceiling will require urgent attention, but we believe that political expediency will prevail preventing the worst case scenario materialising,” he said.



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