Hello and welcome to the Morningstar Series "Why Should I Invest With You?" I'm Emma Wall
and I'm joined today by Nick Ford, Manager of the Miton US Opportunities Fund.
Hi Nick. Good afternoon, Emma.
So this year has been quite flat for the U.S. market apart from little dip in February around
sort of interest rate and jobs figures concerns. Flat is not fantastic, but it is a lot better
than people were predicting at the beginning of this year and indeed last year. This seems
to be probably unloved market where people love to predict its downfall. What continues
to keep it chugging along? At the end of the day markets are going to
be driven by earnings and we have that space in the U.S. at the moment. We have a strong
economy. We have corporations that have just had a fantastic tax break which is encouraging
them to reinvest in their businesses. They can pay their employees more.
Consumers are feeling better as a result, job security is high. And we're at a point
now in the economy where historically when a cycle has been this long you would expect
a downturn to be maybe around the corner. This time it could be different because one
of the key parts of Trump's tax reform was he changed the way that companies are taxed,
and he's encouraged companies to reinvest in their businesses by allowing them to have
reduced tax bills, when they invest in new plant and equipment. So, this is we think
going to spur a new leg of growth for the U.S. economy.
Corporations are now paying 21% tax rates compared to 35% which is freeing up a lot
of cash to pay employees more and so forth. So, the net effect for business confidence
and earnings growth the key driver for markets is tremendously positive and if you look at
the recent GDP growth figures for the U.S. we've actually started to see an acceleration,
not a deceleration. We starting to see employment at record lows and people are now spending
more money. So really we have a kind of snowball effect going on in the U.S. where things should
– the momentum in the economy should continue to grow and…
How much of that is baked into the prices already though, because of course with politics
very little as a surprise people seem to fanfare what they're going to do way in advance now
in order to I suppose avoid things like the taper tantrum. So how much are stocks already
priced in these new tax rates and indeed the buoyant consumer.
It's a very good question. I think you have to look across different sectors of the economy.
We would argue that in some sectors maybe a lot of the good news is priced in and there
is lot of risk. In other sectors valuation is still very attractive.
We would cite the technology sector as being one area where the good news is very much
baked in. you can see software companies trading – many of the most popular ones trading
at up to 25 times sales let alone earnings. Those are very, very high ratings. In other
areas of the economy maybe more in industrial side, the consumer cyclical side, health care,
financials, banks. Valuations really aren’t too stretched at all.
So, I think we've had a situation where maybe some of the more popular areas of the market
the technology areas the FANGS have in aggregate stretched the overall P/E rating of the S&P
500. But a lot of other good businesses are being a little bit left behind. So, I think
what we're excited about as we invest is the ability to find some of the less popular names
that are more attractively valued but still have very good prospects driven by the excellent
economic outlook. Nick, thank you very much. This is Emma Wall
from Morningstar. Thank you for watching.