View more on these topics

Market View: US fundamentals still look healthy

Macroeconomic concerns about the US continue to obscure the fundamental opportunities for the investor.

Are the bears’ concerns significant or are there sustainable opportunities for active fund managers in the US marketplace?

High on the list of concerns is the high level of consumer spending, which has manifested itself in a reduction in personal savings rates from 12 per cent in the early 1980s to near zero today. In reality, increases in net wealth in real estate and other areas have offset decreases in savings, maintaining overall wealth levels.

By adjusting this view of savings, current levels app- ear within historical norms, even before accounting for the effects of inflation.

The twin deficits are another concern that continues to loom large – the federal budget balance is closing in on its 1984 low as a percentage of GDP and the current account balance has reached unprecedented levels at over 5 per cent of GDP.

Here we are more cauti- ous and the growing deficits should be noted with concern. But why has this moment been judged to be the cataclysmic juncture? The trajectories of the budget and current account deficits are nothing new, as current imbalances have evolved over the last couple of decades. Clear guidance from policymakers and measured interest rate increases should provide stability for US equities in 2005. This should provide a further boost to the sterling/dollar exchange rate – a positive performance enhancement for the sterling investor in the US.

At a corporate level, the experience remains bifurcated. On the one hand, the focus on cost-cutting and controlled capital expenditure has boosted corporate operating margins to levels unseen in the last four years. However, real earnings growth is losing momentum, and labour costs continue to show an upward trend. In this environment, some companies will feel pressure on margins. This is more pronounced in some sectors than others, for example, the semiconductor sector.

Fundamentals continue to shape our portfolio construction process, not the macroeconomic environment. We favour high quality, low volatility stocks. We are focused towards companies which are capable of growing margins and are demonstrating strong levels of cashflow. A clear focus towards returning value to the shareholder, either in the form of increased dividends, share buybacks or value-enhancing acquisitions, is also attractive.

In the current environment, we find most of these characteristics in the utilities, telecommunications and healthcare sectors.

In this environment, it is important for investors to be highly selective, even within individual sectors.

For example, within healthcare, we have identified that the new healthcare legislation could place pricing pressure on pharmaceutical companies which have high product expos- ure to the geriatric market. Instead, pharmaceutical benefit managers and managed care providers should be poised to benefit.

As always, the financial market outlook is uncertain. What we do know is that equity valuations and prices seem to be aligned and that the noted concerns are well anticipated by market participants. We appear to stand neither at the gaping maw of an equity market precipice nor at the tantalising onset of another year of 20 per cent-plus returns.

Rather, with a normal yet healthy dose of uncertainty, we are probably on the verge of upper single-digit equity returns for the near future.


Mortgage-phobia grips nation says A&L

Over 6m Britons prefer to rent than buy as mortgage phobia is gripping the nation, according to Alliance & Leicester. A&L’s latest quarterly index finds that over six million UK adults would rather rent than buy.Nearly half of these are fearful of getting on the ladder due to the cost of a mortgage.Further, 17 per […]

AWD revamp as top two quit

AWD Group is undergoing a management restructure following the resignation of chief executive Douglas Gardner and managing director Chris Isard. Both have resigned with effect from Friday, with Simon Waugh taking over as chief executive from September 1. Waugh has worked at director level for a number of financial services firms, including Centrica, American Express […]

A&L announces plans to join BTL market

Alliance & Leicester announces plant to join the buy-to-let market.The bank announced its intention to move into this new market in its half-year trading statement. A&L plans to offer BTL through its intermediary channel.Head of intermediary mortgages Mehrdad Yousefi says: “This news marks an exciting development for Alliance & Leicester Mortgages. While we continue to […]

Retirement - thumbnail

(Another) downhill stroll — retirement planning

A report published this morning by the CIPD (CIPD Employee Outlook March 2015) provides yet more interesting data to the changing landscape of retirement planning. It should be remembered that we are in a period of genuine flux here given that the default retirement age was scrapped three years ago, and new pension freedoms come online in April. Both of these alterations will have a huge impact on how employees plan for their retirement.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm