Threadneedle US manager Cormac Weldon gives his outlook and key stock picks

4th July 2013

The Mindful Money fund manager interview

The US economy and market has rebounded robustly since the financial crisis and its importance cannot be underestimated given it accounts for almost a fifth of the world’s GDP. The outlook is improving too, with economic growth forecast by the IMF to be 1.9 per cent for 2013 and 3 per cent in 2014. The US stock market has recovered too having returned 103 per cent since March 2009. Philip Scott talks to US expert Cormac Weldon who manages the Threadneedle American and Threadneedle American Smaller Companies funds about his outlook and key stock picks.

The US appears to be looking in much better shape these days, is this sustainable?

It certainly helps to have a functioning banking system, this is very important. When the crisis hit, it was quick to address this, taking action back in 2009. Its banking system is in better shape than the UK and certainly Europe. Economies need credit to function and notably the housing market, which suffered during the crisis, appears to be enjoying a solid recovery. The average wage buying the average home has never been more affordable. And sales are expected to pick up. Employment levels are good too and slowly improving. The housing market bottomed-out in March last year after enduring a fall of some 35 per cent from its peak. Then there is the shale gas story. At one point people were talking about the US running out of energy but now it is looking towards a future of energy dependence. Gas prices elsewhere, in Europe for example, are much more expensive and this gives the US a competitive advantage as manufacturing becomes cheaper. In addition, in terms of dividends, US companies are very profitable right now and have a lot of free cash-flow, returning cash to shareholders is becoming a more popular trend.

What investing opportunities has this thrown up?

Housing demand creates further demand for other goods. When people are moving into a new home they inevitably invest in the likes of a new carpet or electrical goods for example. Home Depot is one of our largest holdings in the American fund. It is a massive US retailer, in the vein of Homebase in the UK, only much bigger. It sells tools, tiles, washing machines – a host of such goods and it deals with businesses as well as the public. This is a play on the recovery of the housing market in the US.

You are bullish on media stocks, where are you seeing opportunity?

We are very overweight media right now. One stock I would highlight is Rupert Murdoch’s Newscorp. We know the newspapers it owns over here in the UK (The Times, The Sun) but this firm also has huge television and movie assets. It targets not just the US but the overseas markets too. The media story is a very big one. For example, take broadband; penetration in the US is some 90 per cent while in the UK it is nearer to 50 per cent. There has been a clear growth story in pay-per-view television in the US. As a result of this, firms there have the ability to sell films over and over again, all over the world. People consume media is a variety of ways these days, not just on television but on tablets like iPads.

You are also invested in Apple and Google what’s your outlook for them both?

Right now we are underweight Apple. We had been overweight, in that we owned more than we do now but we sold off some last year. But we think at some point it may be time to top-up and investment more – go overweight again, as it brings new products to the market such as the much talked about lower-end iPhone. In regards to Google, quite simply, it remains a natural monopoly. The vast majority of us use it and more and more commerce is being done online these days.

Financials is another key play for the fund, what stocks would you highlight?

As we are all using plastic more frequently to buy goods, a key holding for us is payments services group VISA. It is more weighted to the US than its competitor Mastercard. We also like Discover Financial Services, a direct banking and payments company which offering credit cards, banking products, loans and payment services. In terms of its customers it tends to lean towards the middle income demographic and is very focused on its cash-back cards.

What your thoughts on the potential reduction of the US Federal Reserve’s quantitative easing (QE) programme which has helped boost its economy?

The tapering of QE is going to weigh on the market but the Fed is being very accommodating. It could not have been clearer in its wording – the economic data has to remain positive in order for this to happen – if the data and figures turn negative, it is not going to reduce the stimulus programme.

13 thoughts on “Threadneedle US manager Cormac Weldon gives his outlook and key stock picks”

  1. Londoner says:

    It all makes no sense to me. How can the world continue riding the crest of an imaginary wave?

    1. forbin says:

      because the alternative is too horrid to contemplate

      but will happen anyway as we measure unicorns and fairy dust….

      Forbin

  2. Paul C says:

    Hi Shaun,
    It is good to see you having a stab at China. Managing flat and falling indicies is a very different challenge, maybe a skill that the UK and western Europe could export to China?
    I think that their effort has been to reduce the shock of falls but as ever that kind of behaviour stores up issues for tomorrow and potentially a greater surprise in future. I believe that quite a few financial products are linked to basic commodities so as the iron and steel market cool there coud be casualties.
    They probably need to stoke up domestic demand that is not property related, I’d go for healthcare and caring for the elderly.
    Paul

    1. Anonymous says:

      Hi Paul C

      The leadership in China must be considering a stimulus package I agree. On the monetary side they have tried cuts in reserve ratios but in my opinion they tend to under-perform as they did when we in the west tried them, so you may be right.

      We could yet see an interest-rate cut there.

  3. Forbin says:

    hah! 6.9% growth is what makes Western pollies drool !!

    perhaps they should add hookers and coke to the figure to get back to 10% 😉

    still 6.9% still means they are doing well ……..

    Can the Earth supply enough to get 1 billion more ” American lifestyles ” going ?

    unlikely it seems , what can’t go on , won’t

    Forbin

    1. Critic Al Rick says:

      So-called ‘real’ Growth, for those that can or cannot think, represents an acceleration in the rate at which mankind is pioneering its own extinction. So much for so-called academic wisdom.

    2. Anonymous says:

      Hi Forbin

      You may be amused to learn that one of the articles I read earlier (in the Wall Street Journal if I remember correctly) was suggesting that China may consider revising its GDP definitions. If you need to do that at its level of growth then as you point out where does that leave us?

    3. Noo 2 Economics says:

      Can the Earth supply enough to get 1 billion more ” American lifestyles ” going ?

      But do the Chinese want American life styles?

  4. baldand says:

    Great column, Shaun. Another evidence of the slowdown you write about is the China Newly Built Housing Price Index, which increased by 2.5% annually in July 2014, the slowest rate of increase in 17 months. In November and December 2013 the index hit an all time peak inflation rate of 9.9%.

    1. Anonymous says:

      Hi Andrew and thank, you for the numbers. If we add in the consumer and producer inflation numbers the People’s Bank of China must be considering an interest-rate cut.

  5. Noo 2 Economics says:

    “Is China finally admitting it is in an economic slow down?”

    I seem to remember reading an IMF country report earlier this year where it was agreed that the Chinese authorities must slow down the overheating property market whilst keeping an eye on the shadow banking system which was causing concern.

    The Chinese authorities stated their view was that sustainable future growth was in the 7% – 7.5% pa range, so I’m not sure they have anything to admit to, other than, with the exception of the shadow banking system, where to my mind risks are increasing, their strategy is working??

    1. Anonymous says:

      Hi Noo2

      It depends on whether this is a downwards “blip” in industrial production or the beginning of a new lower trend. If the former then events fit the path you suggest. However some more industrial production figures like these and the numbers deteriorate with the Bloomberg GDP growth index being of the order of 6.3%.

  6. Anonymous says:

    Hi Andy

    I am a bit annoyed I missed that as there was a Jeff Lynne night on BBC 4 a little while back which I enjoyed and reminded me that he wrote some very good songs. Rather ironically ” I can’t get it out of my head” was in my head for a while….

    Apparently in more recent years ELO had a song called “endless lies”…

Leave a Reply

Your email address will not be published. Required fields are marked *