Rekindling the relationship
It looks like the US may once again have
some investment potential – at least in the
short term – as valuations start to look
attractive and GDP growth prospects
improve on the back of an export-led
boom boosted by the weak dollar
BY DANIEL JUDGE
The US has been one of
the least rewarding equity
markets for investors over
the past few years, with
the S&P 500 returning only
31% over the five years to
the end of June in dollar
terms compared with 93%
for the MSCI Europe Index
and 65% for the MSCI UK,
both also in dollars.
Its performance this year
has done little to change
anyone’s mind, having
declined broadly in line
with other major developed
markets, and faring
worse than emerging markets
as measured by MSCI.
But some investors
believe the tables may be
about to turn, at least in
the short term, and that
now could be a good
time tactically to take on
some US exposure.
David Forsyth, co-manager
of Martin Currie’s on-
and offshore North American
funds, has noticed an
uptick in asset inflows into
funds, which he attributes
to investors thinking the
market now looks cheap.
He says: “The US has
been a laggard performer
for some time but it might
be that things are starting
to change. We have certainly
seen a lot of money
flowing towards our fund
as people warm up to
the US in the belief that
valuations are starting to
look attractive.
“People are really starting
to up their weightings
to the US and we
think the market and dollar
assets are very cheap at the
moment. If I was running
a global portfolio, I would
be tempted to be nudging
overweight in the US. In
the past six months to a
North American equity funds vs index
%
40
30
20
10
0
year, people have had very
low or zero weightings and
that is definitely beginning
to change.”
l Currency gains
Forsyth says the US also
has strong potential for
GDP growth over the next
year, driven by export
businesses that are benefiting
from the weak dollar.
He adds: “The growth
we are seeing in the US
is export led – exports are
key to US growth and that
is linked to the dollar – and
this is masking some of the
weakness in the financial
M’star North America equity sector avg
-10
Jun ’05 Dec Jun ’06 Dec Jun ’07 Dec Jun ’08
Source: Morningstar
S&P 500
AUGUST 2008 [www.international-adviser.com] INTERNATIONAL ADVISER 27
FUND SELECTOR US EQUITIES
and consumer sectors.”
Michael Howell, managing
director of Crossborder
Capital, also thinks
dollar-based stocks look
attractive in the second
half of 2008.
He says: “The dollar
looks best placed to get
most support from shortterm
cyclical factors such
as the improving trade balance
and global investors’
extreme under-exposure
to US assets.”
But inflation and the
credit crunch cannot be
ignored and many believe
the US is about to enter
recession. Unemployment
is rising and consumer
spending is low, as are
savings rates because of
the rising cost of living.
Howell, who describes
the credit crunch as a “refinancing
crisis” for industries
in which long-term
profitability is falling, adds:
“Investors should allocate
assets now, anticipating
a dollar rebound. Longer
term, as dollar volatility
increases, they should
exploit any dollar strength
to diversify into hard assets
such as gold.”
“
If I was running
a global portfolio,
I would be tempted
to be nudging
overweight in the
US. In the past six
months to a year,
people have had
very low or zero
weightings and that
is definitely beginning
to change
”
David Forsyth, co-manager,
on- and offshore North
American funds, Martin Currie
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