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American scale

Ignis’s head of US equities Terry Ewing remains bullish on opportunities in his market, noting the economy is further ahead in the recovery cycle than most.

Co-manager on the American growth fund, Ewing is in his second spell at Ignis, rejoining in 2007 after a period at Old Mutual.

He highlights a strong recovery in US industrials as a key market driver and, with the dollar low against most other currencies, says exports are extremely competitive.

“Companies in the US cut costs as dramatically as any global peers and, excluding financials, these streamlined balance sheets are as strong as they have ever been,” he adds.

Ewing is part of an equity team of four at Ignis, with their process basically designed to pick stocks within a top-down thematic framework.

They seek out companies that are becoming attractive or simply undervalued, offering the usual attributes of strong management and a strategy likely to reap share price rewards.

With much of corporate America currently enjoying balance sheet health, Ewing says how companies use this – either wisely or poorly – is key to his stockpicking.

“Companies can return capital to shareholder in the form of dividends, implement share buybacks or boost capex spending and we are keen to see efficient usage,” he adds.

“Early signs are already emerging, with spending on advertising, capital equipment, travel, entertainment, leisure, group events and conferences all on the rise.”

On the market-cap question, Ewing tends to focus more on scalability of business model rather than pure size.

That said, he acknowledges many mega caps have underperformed for the last few quarters and he has skewed the technology portion of his fund towards these blue chips.

These include Microsoft, Cisco and Apple, which Ewing says are cheap and boasting balance sheets that are too strong not to be recognised by the market in due course.

The team also notes huge technology demand from emerging regions, which will clearly benefit the market-leading companies in the US.

“We largely focus on large and mid-cap stocks, with a few smaller holdings where we identify specific opportunities,” says Ewing.

“In general, we avoid one-product companies and prefer stocks with a diversified revenue base. Many of the best opportunities are in proven mid-caps that can scale their business model upwards, which is how several of today’s best larger stocks began.”

Ewing is playing several themes on American growth, including the return of consumer and capex spending plus recoveries in markets like aerospace and advertising.

Apart from technology, he is also overweight industrials, materials and consumer discretionary stocks.

Since the credit crunch, Ewing says the consumer sector has effectively become two-speed. “There remain many people worried about losing their jobs and houses and their spending is clearly still constrained and focusing on more value purchases,” he adds. “But there are also those, where net worth is more tied into financial markets than housing, willing to spend again and this is evident in areas like hotels, restaurants and even cruises.”

On financials, the team sees this as most exposed to the damaged housing market and feels areas such as loan modification have made the stocks hard to analyse.

That said, Ewing admits the job of fund managers is often to gauge the psychology of markets and says the question is whether banks can improve enough to make their valuations look cheap.

“Several key banking figures are saying the situation is improving and you would typically expect the sector to be leading the market at this stage of the cycle if not for the structural issues,” he says.

“We have closed our underweight but we generally approach this sector by buying quality rather than the poorer stocks that will bounce from a low base.”

While not predicting a huge pick-up in employment, Ewing is expecting modest improvements that will provide a boost for markets.

“We expect inflation and interest rates to stay low for a while yet, with possible rate hikes in the second half, and believe economic growth and consumer spending will surprise on the upside,” he adds.

“Risks are obviously out there in the form of sovereign debt issues and Chinese tightening but we feel the market should be able to cope when government stimulu is withdrawn. The housing market remains the main area of concern and we expect the government will continue to prop that up if necessary.”


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