In a two-day meeting beginning on Tuesday (13 June), US policymakers will have their turn at taking the pulse of the world’s largest economy, with expectations of a federal funds target rate rise of 0.25%.
With the slowing GDP growth in the first quarter of the year seen as transitory, hopes are building of a solid rebound in the second quarter. Relatively high employment and solid jobs growth have all but locked in expectations that the Fed will hike rates.
A world in which US rates are in the ascendancy is often encouraging for equities, with robust (or at least "good enough") economic growth buoying investors’ confidence. This is especially true of scenarios where hikes have been anticipated by markets well in advance.
Since his recent arrival back in the UK from a trip to the US, Angel Agudo, manager of the Fidelity American Special Situations Fund has been very clear about one thing: the opportunity set for investors in American companies is significantly wider than it was a year ago.
“As of today, there are so many companies that have done badly in fundamental terms and valuation-wise, that my pickings are broad in terms of number of stocks and diversity of sectors,” he says.
Among the sectors he highlights as of interest are banks, telecoms, financials, healthcare equipment and services, and technology hardware and equipment.
In the last year the manager says that he has aggressively been increasing his positions in financials. This is unusual for Agudo, who usually trades very little and slowly. Partly, he says, this has been about taking advantage of valuations, but it is also about covering downside risk. Among the names he mentions is Northern Trust – citing the appeal of its counter-cyclicality as a wealth manager and a trust bank.
In the information technology space he has been buying up telecom equipment stocks. He has also added to his position in healthcare after the election as some of the valuations had become a “bit extreme.”
The manager’s top ten holdings (according to most recently published data) include Oracle – the computer technology giant, Berkshire Hathaway, headed by Warren Buffett, L3 Technologies, NXP Semiconductors, Verizon Communications, Pfizer, Molson Coors Brewing, BNY Mellon, Abbott Laboratories and General Electric.
It’s been a curious market in the last year or so, says Agudo.
“Some companies have gone up a lot, but many companies have come down in absolute terms, so I’m finding more opportunities,” he reflects.
The manager points out that he cannot chase particular moves or market swings, but instead emphasizes his commitment to following his process.
A company that is inevitably grilled on by clients a lot is Apple, which he doesn’t currently own.
Answering on the subject he says that the company has some of the characteristics he likes, including a bullet-proof balance sheet and good returns. It is also not super expensive, he concedes, but feels that now is not the right time to buy in.
“I’m finding better things elsewhere at the moment,” he says.
Claire Dwyer is a senior manager in Fidelity’s Personal Investing business. Prior to this she worked at Cambridge Associates and Mondrian Investment Partners. She is a chartered alternative investment analyst.
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