“We are focused on trying to identify individual companies where the share price does not accurately reflect what we believe is likely to be the real economic value of the business when looking out over the next several years,” Mr Papesh explains.
The fund also has a large weighting to consumer stocks. Mr Papesh says this is an area where the group’s growth strategies maintain sizeable investments in select “innovative” companies, which he believes will become larger over time as they executive on individual strategies and continue to deliver positive experiences for consumers. Many of the value-orientated portfolios are finding company-specific opportunities in other pockets of the consumer sector such as media, he says.
“In contrast, many of the more defensive segments of the market – consumer staples, telecom, and certain utility companies – are less attractive at current levels,” he says. In recent years, investors have flocked to many higher-yielding segments of the equity market due to a combination of historical dividend characteristics and because of perceived stability. But Mr Papesh feels the valuations of companies within those segments of the market are “somewhat stretched”.
For many, opportunities in the US centre on its growing technology market. David Coombs, head of multi-asset investments at Rathbones, says Europe and the US appear at first glance to be similar markets in terms of size, business culture and free trade ideals. Despite this, he says they remain sufficiently different for him to have a long-standing preference for US equities going back over seven years. “During this period, other investors have championed a switch into European equities usually on the grounds of valuation or economic momentum,” he adds.
“We have regularly been challenged about our ongoing preference for the US. However, all things considered, the US still deserves its premium. Ask yourself, is it pure coincidence that there are no European equivalents of Apple, Microsoft, Google (Alphabet), eBay, Facebook, Netflix or Twitter? There are of course many very good European companies, but generally we believe the US offers superior and unique investment opportunities,” Mr Coombs adds.
There is no doubt that the next few months will be interesting for the US. A new president is sure to bring potential headwinds, but with the rest of the country in a relatively balanced and stable position, the US could remain a good place to be invest – particularly as other regions face challenges of their own.
