James Abate, manager of the impending PSigma American Growth fund, predicts that conditions in the market are set to favour large-cap growth companies once again.
After seven years of underperformance to small cap, mid cap and value strategies, Abate says the American stockmarket is close to an inflection point. He argues that larger American growth companies are set to do well again.
The fund, which starts trading on October 22 after a two-week offer period beginning this week, will be run by Abate on a sub-advisory basis. Abate has a history with the founders of PSigma — Ian Chimes, Bill Mott and Graham Fuller — as he managed the Credit Suisse Transatlantic fund from 1995 to 2000 while they were at the group.
After six years spent at GAM managing the American Focus and Star American Focus fund, Abate co-founded Centre Asset Management in 2006. He says the PSigma fund will invest in 45-60 stocks. However, the top 20 names in the portfolio will represent about 60-65% of the assets. The tracking error on the fund will be 6%.
Abate says: “While we are growth investors we look for growth through a value lens. We look at the cost of capital and the expectations for a stock’s value. What is important is what companies actually do with their money and how they are growing their business. It is all about sustainable wealth creation.”
On this basis, stocks Abate likes include Coach, Coca-Cola and Google. Names he says he will avoid are those which may be growing but which in reality should not be because their cost of capital is in excess of what they can earn.
Abate uses a valuation screening process he developed that narrows the fund’s investable universe from 550 stocks to 100.
When the fund goes live it will become PSigma’s third unit trust offering to British investors. The number will be expanded to four later in the year when it launches European Income, which, like the American fund, will be run on a sub-advisory basis.