Global equity managers ‘too hesitant’ in capturing US rally

Global equity fund managers have been too hesitant in moving to capture the US equity rally, Artemis Global Select manager Simon Edelsten has said.

Edelsten questioned why more managers did not switch into US equities at the start of Q4, and even suggested some have “lost their knowledge base” when it comes to US stock selection.

US equities have moved higher since the start of the year amid a revival of risk appetite. Reassuring domestic data and the ECB’s liquidity provisions in Europe boosted sentiment – as of 26 January the S&P 500 had risen by 4.8% since the start of 2012.

That came on top of a 13% gain for the index seen between the 3 October low and the end of 2011.

“A lot of global equity managers had just 30% in the US at the start of November. There are difficult questions to answer for those who did not buy US stocks at the end of Q3 and in Q4 last year,” he said.

Global managers typically underweight the US versus their benchmarks because of the sheer size of the US market relative to peers: the MSCI All Country World index, a benchmark for many, has a 46% weighting in US stocks.

The mean allocation to US equities by active global equity funds at the end of October stood at 35%, according to data compiled by Morningstar and Investment Week.

“With the dollar declining and the focus on emerging markets, it has been very easy to be underweight the US. It appears people have lost their US knowledge base; when they see good news coming through it takes time to find new names,” Edelsten said.

His Global Select fund, which launched in the summer, had 43% in the US by the end of October. He bought into several US stocks at the start of that month, including Dow Chemical, Northern Trust and J. P. Morgan, which he described as “streets ahead of most banks in terms of stability”.

His US allocation has since risen to 45% with the opening of a position in hunting goods store Cabela’s. The fund has achieved top quartile performance compared to peers since launch. 

Other managers are content to balance their bullish views on the US with lower allocations. Robin Geffen has increased the US weighting in his £1.1bn Global Equity fund to its highest ever level – but remains underweight the benchmark in the belief emerging markets will still do better this year.

William Davies, manager of the £720m Threadneedle Global Select fund, is maintaining his predecessor Jeremy Podger’s near 50% weighting in the US.

He points to trends such as falling gas prices, which have helped make US industry competitive again.

However, while improving jobs numbers and manufacturing data may have helped strengthen sentiment in recent weeks, fourth quarter earnings have not yet proved fully supportive of the bull case.