The most significant concern we have is over the current trade dispute with China, which we view as somewhat intractable. It will be difficult for China to provide the reassurances the US wants with regards to the forced transfer of intellectual property. And while the actions taken – and tariffs imposed – so far do not represent an unsupportable burden on the US economy, we are mindful of the possibility of further escalation.
On the flip side, a resolution to the trade deal would be very well received by the market. It’s possible that the Chinese authorities are playing a patient game and hoping to use the US electoral cycle to their advantage. With President Trump seeking re-election, he is unlikely to press on with policies that will damage the prospects for US businesses.
As we approach the election, political ‘noise’ will increase. This will be a risk for certain sectors of the market. One example is healthcare. Over 20 Democrats have put themselves forward for the presidential race in 2020. A large number of those envisage a healthcare system that does not include healthcare insurance companies, a so-called ‘Medicare for All’. Our view is that even if nominated by the Democratic Party to run against Donald Trump, such a candidate would be very unlikely to win the presidency, and as a consequence (although we are underweight in the short term) we remain optimistic on this sector in the longer term.
Aggregate earnings for the S&P 500 fell slightly in the first quarter and I believe this is likely to be repeated in the second quarter. But growth in earnings is forecast to resume in the second half of the year.
As we are coming to the end of the economic cycle, we look for firms with low debt and the ability to grow their earnings autonomously (or at least keep them stable). So the fund has a bias to higher-quality stocks, which has protected it during those periods in which the wider market has weakened. One example is Crown Castle, a real estate investment trust (‘REIT’) whose assets mainly consist of towers for cellphone networks. The company has invested significantly in order to benefit from the rollout of 5G in the US.
Given the continuing strength of the US consumer, the fund has a significant level of exposure to consumer-related companies. We have an overweight position in Amazon and other holdings include Lowe’s (home decoration and DIY related stores) and Churchill Downs (owner of the Kentucky Derby).
We also favour payment companies and credit card companies. We see growth in electronic payments and the move away from cash underpinning earnings growth in an industry that it sheltered by relatively high barriers to entry. The fund currently has holdings in Visa, PayPal and Worldpay. Set against this, we have little exposure to traditional banks. The fund has an underweight position in healthcare, for the political reasons outlined above. And we have avoided companies that are exposed to trade with China.
Over the year to date, the fund has outpaced what has been a very strong performance from the US market. At the same time, we also believe that our portfolio’s bias towards quality and growth should mean that it proves resilient in the event of a setback.
Artemis US Select Fund: Performance since launch
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Please remember that past performance is not a guide to the future. Source: Lipper Limited, mid to mid in sterling. All figures show total returns with dividends reinvested. As the fund was launched on 19 September 2014, complete five year performance data is not yet available. Returns may vary as a result of currency fluctuations if the investor's currency is different to that of the share class.
To find out more about the Artemis US Select Fund and its positioning visit the fund page at www.artemisfunds.com.
THIS INFORMATION IS FOR INVESTMENT PROFESSIONALS ONLY. IT IS NOT FOR USE WITH OR BY PRIVATE INVESTORS.
The fund is a sub-fund of Artemis Investment Funds ICVC. For further information, visit www.artemisfunds.com/oeic. Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit www.artemisfunds.com/third-party-data. Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice.
Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority.