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US may be back from the brink but confidence is patchy

by Rachael Revesz on Jan 18, 2013 at 10:04

US may be back from the brink but confidence is patchy

Despite some positive signs in the US economy and the aversion of a fiscal cliff slump, multi-managers like Robin Hepworth (pictured) and Hector Kilpatrick have mixed views on the opportunities for growth.

US house prices are rising and a manufacturing renaissance is blooming. President Barack Obama has raised taxes on the wealthiest 2% of the population and pushed back the majority of spending cuts for three months. Yet the fiscal cliff scare is casting a long shadow across multi-asset managers’ minds.

Robin Hepworth, manager of the £172 million Ecclesiastical Amity International fund, said the main problems facing the US economy remained unresolved.

‘The day of reckoning has been pushed back,’ he said. ‘But the payroll tax holiday has been cut and they have increased spending cuts, which is at least a 1% drag on the economy [over the next 12 months].

‘If I had to put in a guess at the end of the year, US economic growth would be at 0% or minus 1%.’

Keeping allocation low

Hepworth said the political advantage had switched from the Democrats, pushing for higher taxes on the wealthy, to the Republicans, wanting to increase spending cuts, as both sides negotiated the debt ceiling.

He invests around 10% of his fund in US equities, in sectors such as technology, where he said the US was a world leader. He also invests in cheap gas via stocks such as oilfield services company Baker Hughes.

But he said he tried to avoid the US because its fiscal position was the worst in the world and it was an expensive market. ‘If the deficit is 8% and they have got to reduce that to at least 2%, [then] that’s a 6% hit to the economy,’ he said. ‘There’s no way around it: paying down that debt will reduce economic growth.’

His Ecclesiastical Amity fund has returned 23% over the past five years, compared with the FTSE World’s 19.9% over the same period.

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