Funds set to win and lose under Trump revealed

A major survey of asset managers compiled by Bank of America Merrill Lynch found that 23 per cent of investors currently expect a global economic boom over the next year.

This marks a distinct turnaround from the pessimism felt by investors a year ago when just 1 per cent of investors felt growth and inflation would rise.

Of the 210 investors questioned, many have been positioning their portfolios to reflect expectations of a stronger US dollar, an indication of the sense of optimism in the US markets.  

The possibility of an all-consuming scandal grows day by day.James Thomson

Yet James Thomson, who runs the £948m Rathbone Global Opportunities fund, said he thought Mr Trump would fall short of expectations and would fail to bolster economic growth as many anticipate.

Speaking to FTAdviser, he said: “People think Donald Trump is going to bail out parts of the market with his inflation policies.

“But I think that is likely to disappoint; a lot of Mr Trump’s policies will balloon the deficit.”

Mr Thomson’s fund is heavily exposed to the US, having ramped up his holdings to 60 per cent from 45 per cent about a year ago.

But the Rathbones manager said there are risks in the market, adding: “If economic data strengthens, then some areas of the market will really suffer as people turn to reliable growth stocks.”

Growth stocks - where investors focus on capital appreciation by investing in companies that exhibit signs of above-average growth, even if the share price appears expensive  - benefit in a lacklustre economic environment because it is hard to find them.

This means the Rathbones fund – which is focused on growth stocks – could stand to suffer if the economic picture improves.

While growth stocks had beaten value companies between 2013 and 2015, it was value stocks which roared ahead of growth last year.

Mr Thomson said the so-called “Trump rally”, which saw US stocks hit record heights, has largely been in value companies.

“When Trump won it was a scream for stronger growth; there is this idea that he will be the saviour, but we are already seeing his halo start to tarnish,” he said.

“The possibility of an all-consuming scandal grows day by day.”

The fund has returned 35 per cent over the past year, therefore lagging behind the IA Global sector which has scooped up a return of 37 per cent.

Mr Thomson said this underperformance was largely due to better performance among value stocks like mining and banks, which he doesn’t hold.

He said the challenge for the year is if Mr Trump does end up being the “big saviour” in pushing for growth then the companies that are struggling to survive will get this breathe of life, which could hinder his fund.

Hugh Grieves, who runs the £263m Miton US Opportunities fund, said he has increasingly shifted the portfolio towards more cyclical and domestic stocks in light of the expected growth in the US economy.

The fund is now overweight in industrial and consumer-discretionary firms, particularly in the small and mid-cap space, which Mr Grieves said is an indication of his confidence that the US market is set to grow.

“A year ago when everyone was terrified with what was going on in the US economy we thought it is probably not as bad as everyone thought, which could end up being a great opportunity.”

Mr Grieves pointed out the US economy was doing well before Mr Trump was elected, pointing to predictions that the economy would grow by 3 per cent next year.

The Miton manager said consumer confidence and small businesses optimism has had a noticeable bump up since the election, which he expected to continue this year.

He said this would prompt him to further add to his small and mid-cap holdings.

“In the short term, I think Donald Trump can boost economic growth to more than 3 per cent,” he said, particularly if US taxes are cut and corporations bring money onshore.

When looking at figures today, he pointed out that the US markets are already up 5 per cent this year, and said the increase in consumer confidence means this could go higher yet. 

“What happens later on is the big question,” he said, suggesting a big inflationary boom could cause the Fed to step in to raise interest rates.

Over the past year, the Miton fund has returned 48 per cent, outperforming the IA North America sector return of 43 per cent, according to FE.

katherine.denham@ft.com