Kaye’s fund builds on US housing recovery

The US housing market is finally turning and a recovery in homebuilding is evident from the sector’s first-quarter earnings, according to Peter Kaye of Dalton Strategic Partnership (Dalton SP).

In his $83.1m (£54.3m) Melchior North American Opportunities fund, this theme is represented through holdings in material companies such as USG, Eagle Materials and Masco.

He also owns regional banks, such as Western Alliance Bancorporation, and shares in homebuilders.

The remarks come after last week Jupiter’s US income fund manager Sebastian Radcliffe said he was reversing a seven-year underweight in banks, in the belief US housing could now be a “once-in-a-lifetime opportunity”.

Dalton SP’s Mr Kaye said April saw US equities pull back after a strong first quarter, with economic data becoming more mixed.

“After a strong level of positive surprise in January and February, more recent data points have varied,” he added.

“It has become clear strong growth seen in the first two months of the year was partly driven by unusually warm weather. This led to a pull forward of demand, which appears to have unwound in April, but we expect economic data will show an improvement to more normalised levels in coming months.”

On the corporate front, first-quarter earnings have continued to impress: Brown Brothers Harriman data to end April shows 71 per cent of companies in the S&P 500 surprising positively, which is markedly above the average of 58 per cent.

Mr Kaye said growth in earnings for the first quarter had also risen from the meagre 2.2 per cent at the start of April to a healthier 8.7 per cent.

In spite of this backdrop, his fund struggled in April, down 2.5 per cent, leaving it 3 per cent behind the benchmark.

“Our holding in Tempur-Pedic, the mattress maker, was the biggest drag on performance over the month,” added Mr Kaye.