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Blue chips set to take lead in US

PSigma US equity fund manager James Abate believes the US market is at an inflection point that will see blue chips take the lead after seven consecutive years of relative underperformance.

Abate is due to take the reins of the PSigma US large-cap growth equity fund, which launches on October 22, and he is very confident about the timing of the launch.

He says US blue chips are trading at a discount to mid caps and are the cheapest they have been since 1994, as measured by several metrics, including price to book.

At the same time, he says many companies in his investable universe, which comprises S&P 500 stocks with a market cap above $2bn, have the strongest balance sheets he has seen in 20 years.

Abate and co-manager Mark Bothwell use a proprietary investment screening process and the pair take a “one step back, three steps forward” approach, picking stocks with a perceived maximum 10 per cent downside but minimum 30 per cent upside potential.

Abate is bullish about the relative outlook for large-cap growth against value mid cap which has been so dominant in recent years but says the sub-prime crisis will take a few quarters to wash through the system. He says it will result in a flight to quality and companies able to generate sustainable earnings’ growth, resulting in a rerating for large-cap growth stocks.

He says: “There are both micro and macro-economic factors that will cause a style change. US large caps are not only attractive relative to mid caps but are also good value on a global sectoral basis.”

Abate and Bothwell, who run Centre Asset Management in New York, are running the fund on a sub-advisory basis.

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