Threadneedle’s Weldon cuts US GDP forecast

Threadneedle’s Cormac Weldon has cut his GDP forecast for the US this year as soaring fuel costs threaten to cripple consumers.

The head of US equities and manager of Threadneedle's American Smaller Companies fund, has cut his forecast for GDP to 2.7%, from 3% because of the impact of rising fuel costs.

He said higher prices would hit demand, especially from lower income earners and consumers in general, impacting on the country's economic growth.

The national average cost of a gallon of gasoline is $3.97, up 48% since 6 September last year, according to Bloomberg.

"It is not a significant cost for corporates as energy prices are a modest cost for the average company, so it is not too much of a concern for earnings," Weldon said. "It is more about demand, and how it is misplaced going towards energy and away from other goods."

The manager also discussed the US authorities planned exit from QE2 later this summer.

He said QE2 has not been "transformational" to economic growth.

"We have seen a better tone to markets, but in terms of economic growth it is hard to see whether it has made a significant transformation," said Weldon.

The country's indebtedness is another economic headwind, an issue that will be seriously engaged with after the presidential election, he added.

"But we should also be aware of the recent downgrade by S&P; the Democrats want to increase taxes, the Republicans want to decrease spending, but we really need both of these to happen."

Weldon's fund - which has outstripped peers in the IMA North American Smaller Companies sector over three years - is currently overweight in consumer discretionary after he upped his exposure to media companies.

In the last month, Weldon has bought Coinstar, a provider of automated retail kiosks, which he believes is an attractively valued growth stock.

He has also been adding to his holding in Compuware, an emerging software business with a growing base of recurring earnings and cashflow. "This is a significant holding for us," said Weldon. "It is also attractively valued and so we have been adding to our holding."

He added the increasing pressure of the state's budget means his position in HMS Holdings, which he bought in November 2009, has "years of growth" ahead. HMS helps control publicly funded healthcare spending offers a solution that will be in "greater need," Weldon said.