Threadneedle’s head of US equities Diane Sobin has insisted that recent departures from the firm’s North American team have not diminished its capabilities.
‘This is Threadneedle’s most experienced US equity team to date,’ she stated.
Grant was a portfolio manager focusing on US equities within the global multi-asset group at JP Morgan, managing around £3 billion, while the analysts recruited were Amit Kumar from Artham Capital Partners and Benedikt Blomberg and Nicolas Janvier, both coming from Columbia Management, a subsidiary of Threadneedle’s parent Ameriprise.
The nine-strong fund management and portfolio analyst team now boasts a total of 154 years’ experience in the industry, or an average of 17 years each. It also draws on Columbia Management’s fundamental research group of 32 analysts.
Sobin has been adjusting her portfolios since the beginning of the year, although that has more to do with seizing market opportunities than departing radically from Weldon’s approach.
Two hard-hit sectors in particular caught her attention: biotechnology, which dropped in aggregate by 20% between February and April, and information technology – particularly the blue-chip names in that space.
‘Frankly speaking, in biotech we found that to be a tremendous opportunity,’ Sobin said of the correction in that space. ‘There are a number of companies that have very strong product cycles.’
Sobin highlights Gilead as a case in point. Its share price dropped by 13% between January and April, while the broader market was flat. Sobin leapt on that weakness, attracted by Gilead’s pre-eminence in hepatitis C treatments.
‘This is not a concept biotech company. This is a company that can both return capital as well as invest in the future. It is just hitting the sweet spot of its growth curve, all for about a 10.8x P/E multiple.’
Conversely, Sobin began reducing her exposure to increasingly expensive tech stocks late last year. The internet software and services sector duly suffered a less severe retreat of around 15% earlier this year too.
‘The opportunity in that correction was in the larger-cap software companies. These are what you would consider to be the boring old legacy companies, but our bottom-up investment process signalled to us that there was a change going on in a number of these companies.’
Hewlett-Packard and Microsoft are examples of such businesses, which are further benefitting from corporate restructuring under new management teams.
Buying in early ‘gives us access to the steepest part of a company’s growth trajectory’, Sobin argues, and adds that the sector is also supported by recovering global economies.
‘Companies like Microsoft and Hewlett-Packard have huge exposure to the enterprise software business in global markets. If a company is embarking on a restructuring programme and some internal change, it is much easier for those companies to execute with the wind at their back as opposed to a massive headwind based upon the economic environment.’
On US equities in general, Sobin denies that they are too highly valued to be a wise investment at this stage – although she acknowledges that there is now ‘very little opportunity for multiple expansion’ to drive returns.
‘The market continues to grind higher. It has not been what we would call a very strong year, but it has frankly been well within our expectations.’ These expectations are for 8-10% earnings growth this year, and Sobin believes US corporates are ‘exactly on track with that’.
There are nonetheless still some areas where Sobin spies scope for stocks to re-rate.
‘There are opportunities brewing within the market. Despite what we consider to be a fair P/E multiple on the market, we still find a number of opportunities in areas that have room for appreciation.’
One is energy, and earlier this year Sobin initiated positions to capture that possibility. ‘We saw that with high oil and high natural gas prices, which frankly were due to the cold weather drawing down inventories, spending for oil companies was going to accelerate. With that, we took a rather substantial position in Halliburton.’
Halliburton reported its second-quarter results last week, and Sobin welcomed the ‘tremendous acceleration’ in its North American operating margin and earnings, which were up 20% year on year.
Since Sobin became its manager in January, the £1.9 billion Threadneedle American fund has returned 2.6% compared with the peer-group median of 2.7%. On a three-year basis, it has generated 42.9% versus the sector average of 40.3%.