RWC continues to look west as improving US economy is set to lead recovery
Mike Corcell (pictured), manager of the RWC US Absolute Alpha fund, highlights four reasons why investors should be looking to the US for signs of recovery and improving opportunities for equity markets…
1. From a global perspective the US was first into recession and will lead the way out, with the US seeing 2% GDP growth in Q1 2012 compared to flat for the Eurozone.
2. The banking system is stronger and less constrained to promote lending and growth than their counterparts in Europe, with US banks seeing loan growth of 4% in Q1 2012 compared to the 1% growth seen in the ECB area.
3. There is dramatic and substantive evidence that the US housing market has bottomed and is in the process of healing after the worst downturn in 50 years - US homebuilders have seen order growth of 25% in Q1.
4. Valuation of the US market with strong support from record lows in treasury yields with the S&P500 trading at 12.0x forward earnings compared to the ten year average of 14.6x and the dividend yield running ahead of the 10y treasury yield (despite record low payout ratios).
Corcell is responsible for the RWC US Absolute Alpha fund which was launched in September 2009 and is up 5% this year. The fund is one of a small handful of UCITS long short funds that specifically focus on US Equities.
“This year has provided the opportunity to benefit from a strengthening US economy although it’s been essential to avoid the pockets of volatility created by uncertainty emanating from Europe,” says Corcell. “We do believe that structurally the US is well placed to emerge from the crisis ahead of other regions. “Looking at our portfolio we have seen particular strength in the housing sector and to balance this we have been short positions in US retailers that are heavily exposed to Europe. In addition, a view that China is slowing more rapidly than investor perception has allowed us to capture gains with negative positions in mining equipment suppliers and oil service providers. Overall, we are tactically cautious as we deal with geo-political instability but optimistic about the US market overall as it trades in 13x earnings with record low treasury yields and a firm backdrop for corporate profits.“
Dan Mannix, Head of Business Development RWC, says: “Since Mike launched his fund in 2009 it’s been a torrid time for anyone investing in the equity markets. Mike has been particularly effective at managing both the absolute level of volatility in his portfolio and the levels of drawdowns.
“With the fund up about 5% so far in 2012 it is encouraging to see glimmers that equities are starting to provide some opportunities for stock pickers. It’s an essential part of any good long short fund that risk is managed in a way that mitigates drawdowns and Mike’s ability to do this has provided a very strong base from which to generate positive returns as opportunities present themselves.”
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