James Thomson has taken the Rathbone Global Opportunities fund’s US exposure to a record high after arguing that the Chinese slowdown could be “a gift” to the world’s largest economy.
Thomson currently has 52 per cent of the £243.8m fund in US equities – up from a weighting of around 32 per cent at the start of the year. The move has seen the fund’s cash weighting, which peaked last year at about 20 per cent, fall to 3 per cent.
Citing higher conviction, improving fundamentals and better outlook for the companies involved as the reasons for bringing down his cash pile, the manager notes that these positives have been driven by events on the macro stage.
“A lot of this trickles down from an improving economy in the US and the view that a slowing China is pushing equities in the US higher. The conventional thinking is that a slowing China is a cataclysmic event for the world economy but I think it could be the opposite. A slowing China may be a gift for US equity investors,” he argues.
“Slowing China means slower demand for commodities, which creates falling inflation and a strengthening dollar and all of that provides a boost to valuations in the US. There’s a very strong correlation between inflation and stockmarket performance – lower inflation leads to improved market performance in the US and that’s what China is providing.”
Thomson has split the recently deployed cash between new holdings and additions to existing positions, with the US being the largest recipient of the funds. The fund has seen about eight new positions initiated and additions to stocks in the consumer services, financials, technology and energy sectors.
Rathbone Global Opportunities has opened a new position in US discount variety retailer Dollar Tree, which sells every item in its stores for $1 or less. The stock was a previous top 10 holding of the fund, but was sold last year after it was hit by an unexpected slowing in growth.
“I bought Dollar Tree years ago, then I sold it last year and I’ve now bought back into it again. It looked like sales growth was slowing down last year in favour of the ‘big box’ retailers like Walmart,” the manager says. “But that was just a temporary phenomenon – I kept it on my watchlist and bought back in now I have greater confidence that its retail concept has longevity.”
When topping up existing positions, Thomson has concentrated on the consumer services sector – which now accounts for around 25 per cent of the portfolio. Online retailer Amazon, pet supplies chan PetSmart, bakery-cafe Panera Bread and used car dealership CarMax are among the holdings added to in recent months.
The fund also has zero direct exposure to emerging markets. The manager also sold out of Louis Vuitton recently as a major part of the group’s growth thesis is based on expansion in China.
Rathbone Global Opportunities’ performance by calendar year
|Rathbone Global Opportunities||19.58%||9.52%||-4.67%||26.59%||37.97%|
|118 / 249||150 / 237||37 / 219||13 / 202||17 / 192|
Source: FE Analytics