ith global growth having stabilised at around 2.5% in the third quarter, Neptune’s own leading indicators point towards an acceleration over the next six months.
Geffen has maintained a cyclical bias in his £914m Global Equity Fund with a focus on the US, continued exposure to emerging markets and sustained underweights in Europe and the financials sector.
The manager is particularly enthusiastic on the US; the fund is already at its highest historical weighting to the country (50% as at end September). He pointed to a rapid acceleration in US growth in recent weeks.
Housing recovery
He explained: “Having troughed at c.0.5% in the middle of the year, US growth is currently running at 2% and consensus forecasts for next year look overly cautious. With a recovering housing market, we believe the US recovery is supported by strong fundamentals.”
In addition to gaining access to the US recovery – which Neptune believes will be borne out in the Q4 corporate earnings seasons – Geffen has also sought US-listed high quality global companies with growing market share in emerging economies.
He added: “Examples include consumer stocks with strong balance sheets, dominant market share and resilience against margin pressures in a tough operating environment. We also favour more cyclical names in the consumer discretionary and energy sectors, including Halliburton – our top performer in the third quarter.”
Turning East, Geffen believes the recent disconnect between the emerging markets’ superior economic growth and recent market underperformance will correct in the near term, and that their significant growth will translate back into market outperformance.
EMs are cheap
“This is further supported by fundamental valuations: emerging markets are not only cheap relative to developed markets but also to their own long-term averages,” he said.
"China is currently trading on a P/E multiple of 11 compared to its peak of 30 and five year average of 14. Russia, which posted a 4.5% GDP growth rate for the first half of the year, is currently trading on just 5.88x earnings – a 53% discount to the emerging markets average.
“Relative to their contribution to global growth, we believe these valuations are unjustified and we fully expect to see the emerging markets re-rate – particularly China and Russia, two of our long-held overweights.”
