Fidelity’s Angel Agudo has positioned his £924m American Special Situations fund towards sectors deemed to be neutral ground for either presidential candidate ahead of the US election.
The manager has favoured companies in the infrastructure and defence spaces on the basis that both sectors will continue to be supported whether either Hillary Clinton or Donald Trump wins the election.
It has been widely predicted that fiscal policy in the form of infrastructure spending could be the next tool used to boost sluggish growth in many developed economies.
Mr Agudo has planned to capitalise on this spending with holdings in companies with infrastructure exposure, such as Jacobs Engineering.
“Infrastructure spending as a percentage of GDP is at historic minimums and it could be a tool that governments could use to kick-start the economy,” he said.
“I think [Mrs Clinton or Mr Trump] could use it equally, so I’m trying to find companies in these themes.”
Both presidential candidates have indicated that defence spending would once again be a priority after years of decreased expenditure.
Mr Agudo confirmed he favoured defence firms such as L3 Communications, which he said was the top contributor to the fund’s performance over the past 12 months.
“After several years of budget cuts, [defence spending] now appears stable or growing at around 4 per cent.
“A lot of these companies are recognising this potential,” he added.
However, elsewhere the vehicle’s holding in pharmaceuticals manufacturer Perrigo was lamented as a “mistake” due to an unsuccessful takeover bid of the business by fellow pharma firm Mylan.
While the fund has a “tendency towards companies with the propensity to change” – making the takeover activity “nothing weird” – the hostile bid caused Perrigo’s share price to fall.
“With Perrigo defending itself the [price] fell, losing the premium the offer from Mylan gave to the stock,” the manager said. “The mistake was that I missed during the defence of the takeover that management had pushed expectations of the company a bit on the optimistic side, and subsequently the company missed [targets]. I exited the position at a loss because the thesis had changed.”
In addition to failed takeovers, political interference made Mr Agudo bearish on the sector overall. Mrs Clinton suggested during her campaign that she would seek to regulate drug prices more strictly.
“All the controversy around the healthcare sector didn’t help, especially giving Mrs Clinton a head start for the US elections, but this was a mistake at the stock level that cost us dearly,” he said.
The manager reduced the fund’s heavy overweight to healthcare back down to an equal weighting about a year ago, due to both valuations and the chance of greater regulation. However, it appears too early to tell how drastically the regulation of drug pricing could change.
“A lot of the damage, though not everything if regulation really changes, is in valuations. I’m not in the mood for completely going underweight or negative healthcare, because not all the changes the analysts talk about – the main risk being regulating prices of drugs – will be executed.”
The Fidelity American Special Situations fund delivered 54.9 per cent over the past three years, while the IA North America sector returned 56.6 per cent, data from FE Analytics shows.
