PSigma Asset Management is to take on the American market this year, after hiring former Credit Suisse manager James Abate to set up a US large-cap growth fund.
Abate, who currently runs his New York-based boutique Centre Asset Management, joins former colleagues Ian Chimes and Bill Mott, having previously run the Credit Suisse Transatlantic fund before moving to GAM where he ran an American focus equity fund.
PSigma managing director Ian Chimes admits that the US has been a tough sell for fund managers. However, he is optimistic about the outlook for the asset class. He cites Abate’s pedigree as a fund manager, coupled with the American large-cap market looking so undervalued, as the rationale for widen the boutique offering.
He says: “Inflection points are an important part of our boutique. We feel that large-caps present a big opportunity in the US having endured a period in the shadow of their mid and small counterparts, as they have in the UK. The UK saver has often been underweight the US, with emerging markets and property producing strong returns in recent years. But there is a growth story that can create the ideal global diversifier in the market.”
JP Morgan Asset Management global strategist Tom Elliot believes there are good economic fundamentals in the US.
He says: “Corporate profits are at good levels and balance sheets are solid, supporting corporate spending, while consumer spending is benefiting from a strong labour market.
“These robust fundamentals have been reflected in the data. Second-quarter GDP growth has been revised up to 4 per cent, due to a surge in fixed-interest investment. Personal income also rose by 0.5 per cent in July, while real consumer spending increased by 0.3 per cent in the same month. However, housing market worries persist.”
Nonetheless, the IMA North American sector tells a sad story, with only two funds – Fidelity and M&G American – holding more than £1bn. The average size of a fund stands at £184m, which is less than Asia Pacific ex Japan and the global emerging markets sector.
Hargreaves Lansdown head of research Mark Dampier says: “It has been a terrible sector from which to pull out a consistent fund. Along with Japan, I would say it has been the hardest sector to predict.”
He says many UK firms have not put the resources into the US market, which may work in PSigma’s favour, given Abate’s experience.
Dampier says: “Abate did a good job at CSAM and it is possible that large caps could be set for a recovery after being overvalued in 2000. Abate’s performance did suffer at GAM but if he sells 10 per cent of what Bill Mott has done on the income fund, he will be doing well as most other US fund managers would struggle to get five.”
Chelsea Financial Services managing director Darius McDermott says few managers in the sector have had a consistently strong track record. He says: “We are underweight in the US but we will move should it start to show some consistent traits of good performance.
“The problem is that finding managers who can beat the market seven times out of 10 are few and far between and with many other choices available it seems that the risk is not worth the reward.”
PlanInvest joint managing director Michael Owen is more bullish about the US. He believes that the UK cannot continue to shun the world’s biggest economy.
He says: “A key part in adviser rationale lies in the strength, or lack there of, in the dollar. It looks such a poor attraction from the sterling perspective. It is now feasible that you can gain 20 per cent from the stockmarket but by the same token you can lose it on the exchange rate, given the worth of US dollar at present.
“This cannot continue forever and we expect the dollar to grow in strength at some point, with large caps at the forefront of any recovery.”
Baring Asset Management marketing director Ian Pascal believes the US is more resilient than many people think and that the problem with sub-prime contagion will be ridden out.
He says: “The US consumer just seems to be able to find a way to ride out of a crisis. It is a hard market to master, given the amount of information known, as opposed to other markets, therefore limiting the number of opportunities a manager can latch on to.”
PSigma is planning to launch Abate’s fund in mid-October and the portfolio is set to be a mirror version of the portfolio he runs at CAM.
MitonOptimal Asset Management fund manager Tom McGrath says this is the sort of opportunity that the multi-manager firms would look to take advantage of.
He says: “Historically, few managers with UK-authorised US funds have beaten the S&P 500 with any regularity, but there have been many successful US-based vehicles which have, so, if PSigma looks to mirror one of those, it could be a shrewd move.
“At the moment, the asset allocation call is to stay away from the US market but we are broadly positive on large caps globally, given the fact they have been lagging behind in recent times. If that market improves, then large caps are likely to be the place that most people will look to first.”