Threadneedle’s star US equities manager Cormac Weldon is sticking to his cyclically biased stance in spite of a rally in defensive stocks in the first quarter of 2013, leaving his funds languishing in the third quartile in terms of one-year performance.
In the 12 months to September 13, Mr Weldon’s £2.2bn Threadneedle American and £2.1bn Threadneedle American Select funds have both underperformed the average fund in the IMA North America sector, according to FE Analytics.
Mr Weldon said his current stance – which involves high weightings towards sectors such as financials and basic materials – “wasn’t right” for the first quarter of this year, when high-yielding equities rallied hard.
“Our positioning wasn’t right for the first quarter when cyclicals underperformed and defensives were leading the market,” the manager said. “In the past few months, we have caught up a lot. I feel our position is now much more appropriate. I think genuine growth companies are starting to perform a bit better.”
In spite of the period of underperformance, Mr Weldon said he was “still feeling confident”. Both funds still rank in the top quartile of the IMA North America sector in both three- and five-year periods, with the Threadneedle American fund having gained 74.9 per cent in five years, compared with the S&P 500 index’s 64.1 per cent rise, according to FE Analytics.
As the performance of cyclical stocks has improved, Mr Weldon has further reduced his funds’ exposure to higher-yielding equities such as healthcare giant Pfizer. Pfizer’s share price has risen 9.7 per cent in 2013 and 63.7 per cent in five years.
The manager said: “We have taken some profits – we’re underweight ‘safer’ stocks –and have reduced these to buy ‘growthy’ stocks.
“Pfizer had a decent revaluation, but from here there is less of a clear growth path. We’re looking to add to more growth companies, for example LinkedIn, which is a disrupter to an old industry [headhunting].”
Several US managers warned earlier this year that companies needed to post strong earnings increases in the second half of 2013 in order to sustain the equity market’s record high level.
But Mr Weldon said earnings growth did not need to be as high as some people expected in order to maintain the market’s upward trajectory.
“Towards the end of the year, I think we will see 5 per cent earnings growth,” he said. “A lot of people thought earnings were going to be negative, but we don’t require earnings to grow a lot to hold the market up at this level.”
Mr Weldon has run the American fund since June 2011 when he took over from Andrew Holliman.
Mr Holliman left the group after seven years to start an American equities team at Polar Capital. He now runs the Polar American fund with Richard Wilson.