As the US moves ever closer to the 2024 presidential elections on November 5th, James Burns lead manager of the Evelyn Partners Active Managed Portfolio Service (MPS) outlines the team’s approach to investing in US equities and discusses some holdings.
James Burns comments: “With the presidential election little more than 6 months away, we are closely watching what is set to be a rematch of the 2020 race between Donald Trump and Joe Biden. Depending on which candidate wins, may have a differing impact on a number of sectors in the US. While a Trump win may favour oil and gas companies, Biden’s focus on clean energy could give a boost to the renewables sector. There are also potential differences for the aerospace and defence sector given Trump’s reticence to continue to support Ukraine, though higher defence spending by European countries should help fill order books over the coming years. At a macro level, a Trump win could put pressure on the Federal Reserve to loosen monetary policy as he has been vocal in criticising the Fed and stated he would not retain Jerome Powell as its governor if re-elected. Higher tariffs on imports look set to return under a second Trump administration too, which would add an inflationary headwind.
“Against the backdrop of the upcoming election, economic activity has remained buoyant in the US which has been a factor in propelling the S&P 500 Index reaching to an all-time high despite higher interest rates and bond yields. The S&P 500 has had its best start to a new year in five years – increasing by 10.2% in the first quarter of 2024. And if history is anything to go by then being an election year has good omens for the markets. Of the 19 presidential elections held since the Second World War, the S&P 500 has delivered a positive return to investors in 17 of them.
“The question for 2024 is more about where the predicted growth will come from. In 2023 much of the gains were driven by the ‘Magnificent Seven’ tech stocks of Apple, Amazon, Alphabet, Microsoft, Meta Platforms, Nvidia and Tesla. These seven stocks returned 107% over the 12 months versus 24% for the overall S&P 500 Index.
“However, we feel that the rally over the past year or so that has been driven by the Magnificent Seven stocks will broaden out to encompass other sectors. This environment provides an opportunity for active fund managers to seek out companies outside the Magnificent Seven where valuations are more reasonable. Two key factors will help determine how far the performance can broaden out to other sectors: whether the Federal Reserve cuts interest rates this year and also whether the US can continue to avoid entering into a recession.”
James Burns comments on three holdings giving the Evelyn Partners Active MPS team exposure to US equities:
- GQG US Equity – “Managed by a team led by GQS’s Chief Investment Officer Rajiv Jain, the fund has a benchmark unconstrained approach and although it has a quality growth bias the managers are very valuation aware. Its biggest sector exposure is to information technology (50.2%), with top 10 holdings including Nvidia, Meta, Microsoft and Amazon. We initiated a position in GQG US Equity in our Active MPS in July 2023 re-balance and believe this it will complement the other holdings in the portfolio well.”
- JPMorgan US Equity Income – “The fund’s focus is on high-quality US companies with healthy and resilient dividends, providing lower volatility access to US stock market growth. We added to our position in the fund in the February 2024 re-balance of our Active MPS on the basis that it provides exposure to a greater range of sectors beyond the Magnificent Seven. Managed by Clare Hart, David Silberman and Andrew Brandon, it currently has 24.1% exposure to financials and 15.7% to healthcare. Top 10 holdings include financial companies Wells Fargo, Bank of America, Blackrock and Morgan Stanley, plus pharmaceutical research & development company Abbvie in the healthcare sector.”
- Monks Investment Trust – “The Trust aims for long-term capital growth which is prioritised over income. Managed by Spencer Adair since 2021, the global equity portfolio containing a diversified range of growth stocks currently has a 58.7% allocation to North America. The Trust’s biggest sector exposure is to technology (29.1%), with top 10 holdings including Meta, Microsoft and Amazon. However, the managers also have notable allocations in the consumer discretionary, industrials, financials and healthcare sectors. Outside technology, American health insurance provider Elevance Health and funeral services provider Service Corporation International feature in the top 10 holdings.”
