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Wall Street is the top focus!

21 January 2016, Trends-Tendances

Written by Guy Legrand

Boasting a dynamic portfolio with around thirty equity positions, asset management firm Wealtheon has a “moderately” positive outlook on the stock market, with a clear preference for the United States.


Wealtheon is still quite confident in both the economy and the markets but has scaled back the equity weightings in its portfolios. Isn’t that something of a paradox? “Our vision of the global economy is positive, but moderately so”, responds Wealtheon’s CEO, Victor Zwart. “This means that when the markets began to turn hesitant early last summer, we became more prudent and trimmed our positions, notably discarding our exposures to emerging markets such as India, China and the Pacific. After the sell-offs that occurred in August and October, the relatively dim growth outlook compelled us not to reinvest the proceeds of earlier sales.”

Mr Zwart goes on to say that Europe’s stock markets have still not returned to their pre-summer levels and he makes a point of stressing the cornerstones of Wealtheon’s strategy: a combination of fundamental and technical aspects. More specifically, “if we have a positive stance on the economy but do not see this optimism mirrored in the markets, we bide our time. There is a saying “don’t be smarter than the market”; in other words, there is no point in being right if the market’s other investors are not on the same page. We wait for a first signal from them before making our move.”

Yet, many are saying that current interest rate levels leave little alternative to the stock market. “But that is not enough”, insists the CEO: “there needs to be signs of sufficient earnings growth before share prices can move upward. Yet, the outlook for earnings growth in 2016 is below the levels observed between 2013 and 2015”. Hence the moderately positive vision.

The dollar will stay strong

In light of recent market developments, the dynamic portfolio presents an underweight exposure (70%). If needs be, Wealtheon will not hesitate to short the market for brief periods in order to protect its portfolios. The firm feels that European equities are a little more expensive than US stocks even though economic growth across the Atlantic is expected to be a good deal higher than in Europe, at 2.7% in comparison with 1.7% on this side of the pond, where austerity is still very much the watchword. An overweight position in Wall Street (52%) versus Europe (30%) is all the more warranted considering that the dollar is expected to strengthen further. “We see it at parity with the euro”, says Victor Zwart. “The gaping difference in 10-year yields, with US bonds paying more than 2% and European bonds offering close to 0.5%, is drawing investment towards the US, as is the fact that growth is higher over there”. Besides, the Fed could well continue to lift its rates, albeit gradually. Argument: core inflation (excluding energy and food) stands at 1.9% in the US compared with barely 0.6% in Europe. Therefore, the dollar is not hedged.

As for the rest, the dynamic portfolio is invested up to 7% in Japan. There are no individual stocks in this particular case but rather a tracker: the iShares MSCI Japan ETF. The 8% or so of the portfolio’s real estate exposures are positioned via this same iShares family, which is championed by the world’s leading asset manager, BlackRock. Deutsche Bank trackers are also used. The iShares Property Yield tracker covers the US market while the DB FTSE EPRA/NAREIT looks after Europe. Other trackers are incorporated into the portfolio, notably for the software sector and US mid caps. These are non-synthetic physical trackers: by purchasing these, we actually acquire the underlying shares. Incidentally, they are very cheap in relation to investment funds. Should oil revive, Wealtheon will probably surf the swell using a crude tracker rather than purchasing oil stocks.

No positions in commodities or energy!

Wealtheon follows the MSCI World Index in its portfolios but is not afraid to diverge from it to a considerable degree. This means that it can deliberately exclude certain sectors. “Commodities and energy are just such sectors”, says portfolio manager Charles de Saligny, “and this had a bearing on the 12.20% gain we delivered in 2015. We are instead overexposed to the consumer, technology and pharmaceuticals sectors, as well as to finance”. And there are no plans to change this approach in the near future. The portfolio is also devoid of automotive stocks. Wealtheon sold its Volkswagen positions in July in response to the weakening of the Chinese market, one of the carmaker’s most important markets. In doing so, it avoided being caught up in “dieselgate”!

Finance? Still a controversial sector. “We have barely any exposure to traditional banking stocks, rather positions in insurers such as Axa and Prudential, bancassurer ING and leading credit card firm MasterCard”, says Charles de Saligny. Warren Buffet’s favourite bank, Wells Fargo, is also included in the portfolio as its metrics are largely flashing green across the analyst community. With the exception of ING, these financial stocks have outperformed the market as a whole.

In technology, in addition to the tracker cited above, which covers the likes of Microsoft, Symantec and Adobe, Wealtheon is positioned in Apple and Tencent Holdings, a designer of online sales platforms, primarily focused on the Chinese market. We should also mention Acuity Brands (see below).

We have a strong overweight position in consumer durables, which accounts for 17% of the portfolio, via the likes of Starbucks and AB Inbev, a stock that has been in the portfolio for the past five years and has earned its place, bearing in mind that further upside is still a possibility. Notably in Brazil, a still troubled market. The very recent purchase of Nike further strengthened the consumer durables sector in the portfolios. Nike is well-positioned, with little debt (no risk should interest rates suddenly rise), and is expected to enjoy impressive earnings growth.

Best picks

  • Acuity Brands: A leading US expert in lighting systems with a broad spectrum of products. Its LED and occupancy sensor solutions make Acuity Brands an ideal vehicle to position the portfolio in energy efficiency and sustainable development.
  • Alphabet Inc.: It may have changed its name, but Google is still delivering double-digit growth. Paid clicks climbed by a further 23% in Q3 and the cash pile stands at roughly 105 dollars per share!
  • Novo Nordisk: A world leader in the treatment of diabetes, a “market” that is experiencing strong growth. While the multiples are a little demanding, with a P/E of 30x, Novo Nordisk is nonetheless a promising play going forward.
  • Orpea: European leader in retirement homes and clinics with operations in eight countries totalling close to 70,000 beds. Double-digit growth and a very good rein on finance expense.
  • Ryanair: Tumbling oil prices and a lower euro are working in favour of the low-cost airline, and this will probably be the case until 2017. Earnings climbed by 37% in H1 2015.



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