Last week, James Abate, who runs the PSigma North American fund, made one of his regular visits to London to update investors with his current thoughts. He was a colleague of the founders of PSigma’s fund management business, Ian Chimes and Bill Mott, at Credit Suisse. Abate runs the fund from his boutique in New York. His views on the US market are always worth listening to.
Three years ago, he became very positive. His timing was immaculate. The market had suffered from the traumatic fallout from the Lehman Brothers’ collapse and value, with the benefit of hindsight, abounded.
Of course, you have to remember how hard it was to be openly positive in those dark days to realise what a good call James made. Then, the important question of “Where do we go from here?” was asked.
According to Abate, the answer was further ahead – but at a more moderate pace. His focus was increasingly on quality, which, as the fund is exclusively large-cap, makes his task that little bit easier. The reason behind this stance was that the rate of growth in the US economy, which historically favours bigger companies, was slowing but he was less bullish for some time.
In the impressive surroundings of the Carlton Club, with previous Conservative Prime Ministers looking down at us as if to pass judgement on the quality of the debate, the conversation ranged from the drop in the price of gas due to shale deposits, the migration of manufacturing industry back to mainland America, the seemingly unstoppable advance of Apple and, of course, the upcoming presidential election.
Some interesting statistics were produced. The general expectation is for markets to perform well in an election year. According to evidence, in the 21 election years since 1928, the market has fallen only four times. One of those falls was in 2008, when the Obama/McCain struggle was eclipsed by the chaos in financial markets.
Assuming Mitt Romney is the Republican contender, we asked who might win. Without giving away his political leanings, Abate believes Obama has an edge, mainly because Romney is viewed as too distant from the electorate, but whoever wins, he feels policy is unlikely to change to any significant degree. The US will grind on.
It was a stimulating and upbeat presentation on what remains the world’s biggest economy. Even the currency seems to be moving in the right direction. The underlying message was that the easy money has been made but paying attention to stock selection should allow good returns to be made in the future with, it is hoped, only modest volatility.
Closer to home, the tension in European markets faded a little last week. Even Spain managed to shift bonds at auction – a welcome change from the failed attempt little more than a week earlier that so unsettled markets. Tesco demonstrated it is not yet down and out and the weather remained capricious in a typically British way. In fact, it was much like any other week in the life of a market commentator – thankfully, devoid of drama.
Given the circling problems, investors are still hesitant to commit but our ingenuity in solving the problems constantly arising gives me cause for hope. As the days lengthen, opportunities will surely arise. At some stage, the call to switch from government bonds to equities must surely be made but for the present, no news is good news in my opinion.
Brian Tora is an associate with investment managers JM Finn & Co