In this video, Luke Newman, Fund Manager, discusses the opportunities that he sees in UK domestic equities and why the tides may be turning for some US companies.
What opportunities are you seeing at a regional level?
We have made two significant positioning shifts in recent months. Firstly we have moved long UK domestic orientated companies, which compares to the net short position we have had in place since after the EU referendum in 2016. Secondly we have also reversed our long standing long exposure to the US and now have a small short positioning.
We believe there is opportunity to be had in domestically-focussed UK equities given the combination of extreme valuations, weak investor sentiment, and the decreased likelihood of the more extreme Brexit scenarios. Meanwhile, consumer facing segments of the US economy are grappling with potential protectionist headwinds and a strong dollar creates an earnings headwind for many internationally exposed companies.
What thematic trend should investors watch out for?
We continue to note the market’s aversion towards financial leverage. The tide is turning for those companies – particularly in the US – that have been using financial engineering in the form of taking on cheap debt to buy back shares, rather than investing in their own businesses. We have been positioning our short book to profit from those highly indebted companies that are experiencing deterioration in cash flow and profitability.