InvestmentsOct 1 2014

Rathbones’ Thomson: I won’t risk more on US

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Rathbones’ global equity fund manager James Thomson has pledged not to raise his hefty bet on the US further, after it reached almost 70 per cent of his portfolio.

The manager said clients had started raising the matter of his extremely high weighting in the world’s biggest stockmarket, but he believes the US currently offers the best potential for “risk-adjusted returns”.

In spite of its predominant focus currently being on US stocks, the fund could not be written off by investors as simply a ‘North American fund’ because its regional weightings would continue to evolve over time, he said.

The manager’s 69.1 per cent position in the US is significantly higher than the ‘neutral’ weighting on the fund’s benchmark, the FTSE World index, which was 51.2 per cent at the end of August.

“That’s something that some clients have mentioned,” Mr Thompson said.

“People want a global fund, so I do not think I should go beyond that. People want multiple country exposure and that is why they buy global.”

The big US bet has been adopted on Mr Thomson’s £450.4m Global Opportunities fund, which just two years ago had a weighting in the US of 35 per cent.

During that time the US has outperformed other developed markets, with the S&P 500 index gaining 39 per cent, compared with 22.5 per cent on the UK’s FTSE 100, according to FE Analytics.

However, in spite of ramping up his US weighting, Mr Thomson has lagged his benchmark in the past two years, gaining 28.4 per cent versus 32 per cent of the FTSE World index.

The short-term underperformance comes as Mr Thomson has been focusing on smaller-sized companies, particularly in the mid-cap section of the US stockmarket.

These areas have lagged larger companies amid recent rallies, with the Russell 2000 index of US small companies falling by 2 per cent in 2014 so far, compared with an S&P 500 index gain of 9.7 per cent.

The manager said his favoured investment sectors had also fallen out of favour lately, such as consumer discretionary and industrials. Meanwhile utilities and healthcare companies, both areas that Mr Thomson has tended to avoid, have rallied.

The fund has also been hit by its lack of exposure to emerging markets, which Mr Thomson said was a permanent feature of the fund due to his view that he does not have the information advantage necessary to outperform in the region.

“Performance has been disappointing, but I do not feel too paranoid,” he said.

“I feel the fund is a coiled spring. The long-term prospects are as good as I have ever seen them.”

Mr Thomson said his US exposure had been raised further this year as he invested in a “broad swathe” of sectors, including consumer-related stocks, technology companies and aerospace businesses.

Many of these recent purchases have come in the mid-cap space, in spite of the downturn in the sector.

In spite of the short-term hit, in the past five years the fund has gained 74.1 per cent versus a 68.4 per cent benchmark rise. Over 10 years the fund has gained 192.5 per cent, far higher than the FTSE World’s 140.4 per cent rise.

Global managers find opportunities aplenty across the pond

James Thomson is not alone among global managers staking a significant portion of their assets on North America.

According to data from FE Analytics, 18 funds in the IMA Global sector have more than 60 per cent of their assets invested in North America.

Topping the tables in terms of US exposure is Ian Warmerdam and his Henderson Global Growth fund, which has invested 70.5 per cent in US equities.

The region has been a perennial favourite for Mr Warmerdam, who also co-manages the Henderson Global Technology fund.

It has served the manager well in the past year as he has nearly doubled the return of the average fund in the sector in the past five years, delivering 97.9 per cent compared with the sector average of 50.4 per cent.

Other funds with significant exposure to the US include Terry Smith’s Fundsmith Equity fund, Mark Hargraves’s Axa Framlington Global Opportunities fund and Jeremy Podger’s Fidelity Global Special Situations fund.

However, most of the rest of the list is dominated by funds not marketed to UK retail investors, such as the Standard Life TM International fund or tracker funds, such as the Vanguard Global Small-Cap Index fund.