"We buy quality in a stable market at a cheap price"

All the world loves America. The investment world, at least, continues to favour US stocks, with tech firms performing especially strongly of late on the back of positive economic data, including low unemployment and subdued inflation. Simon Edelsten doesn't demur from this enthusiasm. Slightly over half of the fund he manages alongside Alex Illingworth and Rosanna Burcheri, Artemis Global Select, is currently invested in the US.

But he is also open to seeking out promising stocks in markets that are currently sluggish or unloved, such as China and Japan. "We won't buy into a market that has got economic problems, but we will buy quality stocks in a stable market at a cheap price," Edelsten explains. "Because we've got a longterm view, we can wait for things to get better." "We do quite a lot of ‘dull but stable'. It's amazing how adding these things up and compounding the interest can make you good amounts of money."

Global analysis

This approach is possible because Edelsten's team eschews GDP predictions, focusing instead on half a dozen long-term growth themes at any time. Automation and healthcare are among the current crop. A forensic global analysis follows the selection of each theme, including interviews with players in rival markets: "You learn a lot by talking to Japanese robot companies about the weaknesses of their American rivals, and vice versa," says Edelsten.

The team then seeks out the strongest and best value companies within that theme around the world. This, Edelsten believes, is where active fund managers can prove their worth in a market that offers a wealth of choices for private investors. Buying an ETF is no substitute for global analysis and the capacity to spot cheap stocks at the right time, he suggests: "That's really where we're earning our fees - not just by finding a theme, but by making sure we're investing in an efficient way and that we're on top of the competitive changes that happen quite rapidly over the long run."

Healthy States

For the moment, those competitive factors often lead back to America, as far as Edelsten is concerned. He believes US corporates are better positioned than their counterparts elsewhere to face the big technological decisions posed by automation and big data.

They are also better placed for growth: "Because European stocks have been under pressure to pay dividends over the whole of the last cycle, their investment levels have generally been lower than American businesses, which have carried on doing more R&D and investing for the future."

While European equities appear to be cheaper, much of that is down to weighting, Edelsten points out. European stockmarkets have far fewer technology companies listed and a heavy weighting in banks, which trade on lower multiples. Which is not to say that there aren't overvalued stocks in the States - "We think the very biggest companies in America, by and large, are too expensive" - but they are relatively few in number.

Click here to learn more about Simon Edelsten's market outlook for 2019