The US market is still too optimistic on the outlook for company earnings in the eyes of Baillie Gif...
The US market is still too optimistic on the outlook for company earnings in the eyes of Baillie Gifford American fund manager Andy Holliman.
Holliman, who has helped to run the Oeic sub-fund for the past two years, said the number of negative pre-announcements coming up to the third quarter suggests the market may still be a little too optimistic on earnings estimates.
He added: 'We need to see a revision to more realistic earnings growth. In the past few years, companies have been claiming 15% growth figures, and so building up unrealistic expectations.
'The good news from the market's point of view is that issues such as Enron and options issuance are out in the open.'
Holliman is predicting a below trend economic recovery in North America, assuming trend growth to be around 3%-3.5% per year.
On the positive side, he said, US consumers appear to be relatively buoyant and able to underpin the economy. However, they do not have the ability to give it the extra spending needed to produce a really strong recovery.
'The buoyant housing market has to some extent offset the effect created by equity markets falling for the average US consumer,' said Holliman. 'But undoubtedly it has been a hit to consumer balance sheets.'
He feels a double dip in the fortunes of the US economy is unlikely unless there is war in Iraq leading to a higher oil price.
In this environment, Holliman believes the market favours stockpickers, unlike 1999 and 2000, when it was indiscriminate in how it priced stocks. He is focusing on companies with real earnings and free cashflow.
Overall, he feels the equity market is still priced at above average levels. At a sector level, he is overweight consumer staples and financials. He has been adding to healthcare in the past two months as the sector fell sharply in July. He remains underweight in technology.
In a period of falling markets, Baillie Gifford American is being run on a fully invested basis and Holliman is not planning to build up a cash weighting or buy bonds.
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