Cyclical overweight boosts Luddy fund

JPMorgan Asset Management’s Thomas Luddy has said his overweight to cyclical sectors such as industrials, media and technology has helped boost recent numbers on the top performing fund.

Mr Luddy, who runs the JPM US Select fund with Susan Bao and Helge Skibeli, said the semiconductor sector, which makes components for electronic devices, performed strongly in the past few months and helped drive the fund’s performance.

The fund has produced top-quartile returns in five-, three- and one-year periods in the IMA North America sector according to FE Analytics and is also a member of the Investment Adviser 100 Club of top-performing funds.

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The manager said stock selection “drove most of the alpha” in the third quarter, particularly in industrial cyclicals and the semiconductor sector.

“Within industrial cyclicals, the more globally diversified cyclicals, like United Technologies and Fluor which detracted in Q2, did well. Both reported a strong quarter, with better demands and margins.

“Within semiconductors, Avago and Lam Research were the top contributors. Conditions in the semiconductor market have improved but units are still below trend and we could see outperformance from broad based, industrial and communication equipment exposed names.”

Being overweight the media sector has also been positive for the fund.

The S&P 500 Media index has delivered nearly 44.1 per cent in the past year compared with the broader S&P 500 index’s 26.5 per cent, according to FE Analytics.

The manager owns tech giant Google as well as Amazon and filmmaker Time Warner among his media stocks.

He also recently purchased a holding in Walt Disney Productions based on its “surge in free cashflow” which was aided by the end of a major investment cycle and an “increasingly positive” studio outlook.

In spite of the recent political impasse in the US which saw non-essential public sector workers forced to stay at home for 16 days as part of a government shutdown, Mr Luddy said the fund would keep its “pro-cyclical tilt”.

“In spite of their outperformance this year, cyclicals continue to trade at a compelling valuation relative to defensives,” he said.

“Durable goods spending remains at a 50-year low and the pent-up demand there supports our cyclical bent at both the micro and macro levels, although the magnitude of the tilt has lessened.”

The manager added that he had an underweight stance in real estate investment trusts (Reits) in spite of them being popular with many managers at present.

“We continue to underweight the high dividend payers – such as utilities, Reits and consumer staples – because of their rich valuations,” he said.