I thought this would be an opportune time to write about an American fund. The market has had a very good couple of months as measured by the Dow Jones index.
Recently, however, it seems to have hit an air pocket. This has got much to do with rising bond yields and the fact that equity markets have chosen to ignore the likelihood that US interest rates will rise or stay flat rather than fall.
Not surprisingly, we are seeing a period of painful readjustment. Does this mean the market should not be bought? I think not.
The dilemma for UK investors has been that the American sector generally has not supported the number of consistently excellent fund managers we can access in the UK or Europe. One exception to this rule may be Felix Wintle, who has managed the Neptune US opportunities fund since launch on December 31, 2002.
Fund performance since launch is easily top quartile and it has outperformed the S&P 500 benchmark. The focus of the fund is on companies with a market cap over $1bn so it is very much a large and mid-cap portfolio. Like so many Neptune funds, it is also a best ideas portfolio and with a fund size of only 10.5m there is no doubt that it is extremely nimble.
As I have said before in previous articles on Neptune, this is a boutique that shuns the star fund manager culture. The group has blended the talents of its managers extremely well, both the experienced and less so, which has given it a great resource for the future. The fund managers are also analysts.
Wintle looks after the healthcare sector. As a quick aside, he believes the healthcare sector is interesting at present. These companies have been suffering from losing patents but this is more than discounted in the price and he feels it is very much yesterday’s news.
He is looking for companies with a true global footprint but he likes the US for its internal dynamics and economy.
At present, he is overweight in industrials and materials, mainly because of the China effect. He likes the casino stocks which are not just benefiting from the normal gambling in Las Vegas but are also linked to casinos in China. He also mentions a shoe company called Crocs which is branching out into Europe and the UK. I suspect this is a company you will hear and see a lot more of in the course of the next year.
Wintle is optimistic on the basis of cheap p/e ratios, market underestimation of the opportunities in the US and strong earnings’ growth. His main concern when I met him was bond yields of 5 per cent, which, as I have already mentioned, have been spooking the market. My own view is that this is just an excellent excuse for profit-taking after the strong run we have seen in the US. Retail investors in the US have generally been redeeming their mutual funds through fear of the next big downturn. In addition, there is an exceptionally high level of short selling taking place.
None of these to me indicates a market peak, where you get such fantastic enthusiasm that eventually there is nobody left who has not already bought. The wall of worry is still very much there and a correction right now should prove to be a great buying opportunity.
If you want a US fund which is small and nimble, Neptune US opportunities is worth a close look.
Mark Dampier is head of research at Hargreaves Lansdown.