Global growth generalist investment trusts are playing the US through the Pacific (ex Japan) region ...
Global growth generalist investment trusts are playing the US through the Pacific (ex Japan) region rather than through the US itself, as the economies in this region are well placed to be major beneficiaries of an expected US recovery.
James Robinson, fund manager of the Witan investment trust, says that rather than buy into US stocks themselves, he is finding good opportunities to buy into companies that export into the US.
He says: 'The return on equities in the Far East (ex Japan) is increasing, as are the profits. This is not the case in the US, so we are preferring to play the US in the Far Eastern economies like Korea and Taiwan, rather than the US .'
Ian McLeish, manager of the Scottish Investment Trust (SIT), is also looking at the Pacific (ex Japan) region as he moves the trust away from the more defensive areas into cyclicals, which are set to benefit from an economic upturn.
McLeish says: 'The Pacific region tends to go more up and down than the US but it tends to benefit when the US recovers. Compared to the US, the shares are not as expensive and, in historical terms, are looking reasonably priced.'
McLeish expects the US recovery to be relatively slow due to substantial widespread overcapacity in many areas of the economy. He says that although consumer spending remains relatively robust, the capacity overhang means there won't be a lot of capital spending. It is therefore difficult to see company profits being high, he adds.
In the US itself, McLeish likes financials and some medium-sized growth companies, as well as some general retailers, but he is underweight pharmaceuticals and utilities.
Robinson says the Witan trust's current strategy centres on identifying areas with a growth bias rather than looking for value. Currently, Robinson isn't looking for this growth in the tech, media and telecoms area.
He says: 'The philosophy at Witan is identifying growth at a reasonable price. As such, banks look interesting, with shares yielding quite a lot at the moment. Abbey National is yielding 4.6%, the Hong Kong Shanghai Bank some 4.2% and Lloyds TSB is yielding 4.7%.'
Witan is slightly underweight UK at present because Robinson judges that in an upswing, the UK economy won't be particularly exciting due to its defensive qualities, and it is the areas with higher beta that do slightly better.
Jeremy Tigue, head of investment trusts at F&C, says the Foreign & Colonial Investment Trust has been waiting to see how things will develop after 11 September before making any major changes to the trust's portfolio.
The trust has 37% in the UK, which Tigue sees as a global safe-haven with relatively stable growth. He says that while the US market has had a sharp recovery recently, it has been a little overdone. Consequently, he is being cautious and has 23% of assets in the US.
Tigue adds: 'The only change has been to reduce our exposure to Japan and the weakness of the yen by going more into yen borrowings.'
On Japan, Robinson says: 'We are still being cautious in Japan and reduced our exposure to the area in the summer and hedged the yen exposure. This has been a big benefit over the last month with the yen weakening further.'
Far East (ex Japan) leveraged to US growth.
Profits increasing in Far East region.
Attractive yields in bank stocks.
UK economy to underperform.
Yen is showing signs of weakness.
Overcapacity in the US to slow recovery.
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