Martin Currie North America fund manager Penny Kyle says that the US is not “out of the woods” yet, now that the “fiscal cliff” has been averted.
Earlier this month, the US Senate voted to approve a bipartisan budget deal negotiated with the White House to avert the fiscal cliff, which would have resulted in sharp spending cuts and across-the-board tax rises.
Kyle, who runs the Martin Currie North American fund with Tom Walker, says: “While there are signs that the US economy is improving, the biggest headwind to the US is still fiscal policy. We got through the fiscal cliff, but we are not out of the woods yet, because there are a number of other hurdles that it needs to get through to avoid recession.”
These are the budget ‘sequestration’, which has been delayed until March; the US reaching its debt ceiling in February and the appropriation bill – which authorises the government to spend money – which will be at the end of March.
Kyle says that she expects that GDP growth to be sub-trend, at around 2 per cent growth, in the US for a number of years.
Kyle says: “Business confidence has been weak, because of uncertainties around the fiscal cliff. Companies have not been doing anything with their cash. When confidence improves, they will spend that cash.”
She says that the team are focused on companies that are going to grow their dividend and do share buybacks.
Kyle adds: “M&A activity has been fairly muted, but it should pick up. We have bought a number of companies recently that have undertaken M&A activity themselves.”
Companies that have bought that fit in with this M&A theme is industrial company Pentair, which Kyle bought in November. It is 2.4 per cent of the fund. In March, Pentair reached a deal to buy Tyco International’s flow-control business.
She has also added to the position in aerospace company United Technologies Companies, which acquired another aerospace business Goodrich Corporation. “We liked the deal, because it further entrenches them within that space,” she says. She upped the position from by 0.5 per cent to 2.9 per cent