James Hackman is steering clear of areas of the US pharmaceuticals market that may be vulnerable to a Hillary Clinton presidency as he positions his Neptune US Income fund for future payouts.
In September 2015, presidential candidate Ms Clinton tweeted she would target the high cost of prescription drugs, following high-profile examples of some firms increasing prices of products several times over.
The comment sent the Nasdaq Biotechnology Index down 4.7 per cent on the day and, with Ms Clinton ranked by bookmakers and polling firms as the most likely successor to president Barack Obama, Neptune’s Mr Hackman said he was planning accordingly.
“I think the base case is still that Hillary gets in, which puts pressure on the drug manufacturers because that’s a stated aim [of hers],” Mr Hackman said.
“You try to position the fund towards sectors that are more protected from that, so medical devices are, obviously, not in the firing line and neither are cancer drugs. There’s no political benefit to saying, ‘we’re going to put pricing pressure on [start-up firms producing] cancer drugs’. That’s not a politically good idea.”
The US primaries, which see the Democratic and Republican parties pick candidates for November’s presidential election, come to an end next month.
Bookmakers have a Democratic win in November as the most likely outcome, but Mr Hackman is not anticipating a drastic impact on US markets no matter who wins.
Although the upper legislative house in the US, the Senate, will also see representatives elected in November, only a third of the 100 members could change.
Mr Hackman said: “You’re still going to have the usual roadblocks we’ve seen over the past five years. Even if you’ve got a madman in the White House you’d still have nothing happen unless you can get consensus. I don’t think any particularly unfriendly actions are going to occur to the market,” he said.
Elsewhere in his portfolio, the manager said that while the fund benefited from underweight positions in banks during the sell-off at the beginning of this year, sentiment towards interest rates was switching too quickly between extremes.
He said with future rate curves showing expectations for no rate hikes in 2015, investor sentiment had gone “too far”.
“If people are expecting no hikes, then that’s probably too far the other way – everyone was expecting lots, and now they’re expecting [none]?”
This shift has led him to initiate a position in Columbia Financial, a £2bn market cap bank based primarily in Seattle and the North West. Mr Hackman said the bank is well capitalised and is exposed primarily to companies set to benefit from the low cost of oil.
Mr Hackman is also seeking new opportunities in consumer discretionary, with his eye on American fashion retailer L Brands, whose flagship brands include Victoria’s Secret and Bath & Body Works.
The Neptune US Income fund has returned 29.1 per cent since Mr Hackman took over the fund in June 2014, compared with a 21.5 per cent return for the IA North America sector, according to FE Analytics.
Hidden gems: A closer look
Neptune US Income is one of three US equity portfolios to form part of the inaugural IA Hidden Gem Club, highlighting portfolios under £100m in size.
US equities are a notoriously difficult stamping ground for active managers, but our Club – which uses one-year information ratios to highlight funds displaying a strong level of manager skill – has unearthed three to keep an eye on.
Unsurprisingly perhaps, all three are income-based funds, illustrating just how the demand for dividends may be becoming something of a self-sustaining strategy. As investors’ demand for income grows, so too does the likelihood that dividend stocks will outperform the wider market.
But what the information ratio tells us is that these three managers have been more adept than most peers at picking the right stocks.
Of those to make the cut, two funds – those run by Neptune and Sanlam Four – have been run by their respective managers for less than two years, which may have contributed to the fact they have yet to materially grow in size.
The other – the BlackRock vehicle – also appears to have enjoyed an upturn in fortunes since the arrival of co-manager Tony DeSpirito in 2014. Of particular note is the fact that Mr DeSpirito is a veteran value investor: the past few years have not been a good time for this investment style, but the trust has flourished nonetheless.
