HUB EXCLUSIVES PANEL DISCUSSION – OPPORTUNITIES IN THE US MARKET TODAY
Panel discussion, hosted by Cherry Reynard, with:
Anjli Shah, Investment Director, abrdn
Hugh Grieves, Fund Manager, Premier Miton Investors
Joseph Knight, Investment Director, Ninety One
Artificial intelligence may have garnered all the headlines, but there are plenty of other growth opportunities in the US market. Over 140 companies outpaced the S&P 500 in 2023 and market leadership has been broadening and diversifying since the start of the year. Where are fund managers finding opportunities in the new environment?
Companies with exposure to artificial intelligence set the pace in 2023, and it is still creating opportunities. However, most managers are looking beyond the ‘magnificent seven’ of Nvidia, Amazon, Alphabet, Apple, Microsoft, Meta and Tesla, which look increasingly expensive, and, in some cases, are seeing growth wobble. Anjli Shah, co-manager on the abrdn Global Mid Cap fund, for example, is finding options further down the AI value chain through companies such as Cadence and Synopsys.
However, AI is not the only growth story in town. Shah is looking for high quality companies with a long-term growth trajectory, and a history of beating earnings expectations. “We typically tend to be overweight sectors such as IT, consumer, industrials and healthcare…We see some interesting themes emerging at a global level. These include the energy transition, alternative finance, lifestyle, medical innovation and workplace transformation. We have a number of stocks that can fall into those various buckets across the globe.”
Joseph Knight, portfolio specialist at Ninety One, is hunting in similar areas: “We’re looking for high quality businesses that have enduring competitive advantages through intangible assets. They will also have balance sheet strength, and be capital light businesses that can compound free cash flow across market cycles. They will be backed by idiosyncratic growth drivers.” He is finding opportunities within the digitisation trend, including semiconductor and digital design groups.
Healthcare is also a focus for Ninety One: “Within healthcare, we’re looking at life sciences and particularly the ‘picks and shovels’, those companies producing consumables and equipment for drug manufacturing. They have seen a rebasement in earnings post-Covid, but we still think these businesses are still very well-positioned and backed by structural trends.”
‘Companion animals’ is another area the team is looking at. Knight says that there were concerns that the Covid trend to buy pets would disappear, but it continues to increase with people willing to spend more on them.
Hugh Grieves, manager on the Premier Miton US Opportunities fund, wants to capitalise on the strength of the domestic US economy, which he believes will strengthen this year. He says: “We invest in dull and boring businesses. We not trying to find companies that will change the world, the next Amazon or Google. We like companies that are distributors, funeral homes, consultancies – businesses that can tick along and compound year after year. We wait until they are cheap, we buy them and we hold them for years.”
Notably, the fund has little in technology, only 1-2%. Grieves says: “The reason for that is that mainly valuation. These stocks did well last year, but we are starting to see them underperform. Looking at Nasdaq equal weight index as a proxy for the typical tech stock, the assumption would be that it had done amazingly well given the hype around tech this year. Actually, the Nasdaq has done worse than the S&P, worse than the mid cap index and worse than the Russell 2000. We believe that trend will continue.”
Better time for small caps?
