Goodbody Stockbrokers has added to its US equity positions over the past week, going from neutral to overweight on the back of strong earnings results and mid-term elections in the US.
The broker and fund manager, which manages a portfolio of some €6 billion on behalf of its clients, took the decision last April/May to sell down its US equity holdings by about 10 percentage points. This came on the back of a problematic looking Italian budget, ongoing Brexit discussions and some uncertainty with regards to the US mid-term elections, which took place on Tuesday.
However, as Bernard Swords, chief investment officer with the broker said, some of these "known unknowns" have since become known, with the Italian budget having been rejected as expected by the European Union.
Mid-term elections
Moreover, the mid-term elections in the US provided a boost to markets, and Mr Swords said the outcome, with the Democrats taking control of the House of Representatives and the Republicans the Senate, likely means that the policies agreed upon will be "middle of the road, and not too extreme one way or the other".
The third factor cited by Mr Swords in favour of US equities is the general health of the global economy, and in particular the US economy, “which looks to be accelerating again” he said.
As a result, Goodbody has since reversed April’s decision by re-investing back the 10 percentage points, given the opportunity to buy at attractive valuations.
Putting recent market weakness down to rising bond yields, which sent jitters through the equity markets, as well as some early poor results in earnings season, Mr Swords said this has since turned around.
“It was one of the best reporting seasons, and profits came back in at 6 per cent better than expected, with about 80 per cent of companies doing better than expected,” Mr Swords said.
Low interest rates
While some investors have expressed concern that US stocks are over-valued, Mr Swords said this is because of low interest rates.
“When looking at the long-run average it looks expensive; but it looks expensive because we’re in a very low interest rate environment,” Mr Swords said.
Goodbody favours US equities above European, “as there is better momentum coming from the US and we’re unlikely to see that turn around over next six months” he said. And, Irish investors might actually see additional returns coming from a stronger US dollar, he added.
