The US economy remains by far the largest in the world with companies that are amongst the most vibrant and entrepreneurial, adapting quickly to change and successfully competing on a world stage. Although the length of the current upswing in economic cycle is extended by historical standards, the consensus forecast for corporate earnings growth in 2018 is 19%. A chunk of that relates to tax cuts but strong underlying fundamentals account for most of the growth. With both the Fed and the White House supporting an expansionary, pro-business (albeit US centric) policy, this is a positive backdrop for corporate profits to continue their upward trajectory, at least in the short to medium term.
The counter argument is that the S&P Index is up 66% in the last five years and is now trading on a forward multiple of 16.3x, leaving limited scope for multiple expansion. Fundamentals have looked solid but it’s fair to say that the market has been driven by momentum over the last few years with its narrow focus on technology. This doesn’t inspire confidence when one reflects on previous periods of soaring tech-driven markets. This is even more so given emerging cracks in some tech giants, which were, quite frankly, priced for perfection. The sector contains many great companies with exciting prospects but recent moves in Facebook and Tesla show that it is never a good idea to assume it will always be plain sailing.
The Sanlam FOUR US Dividend Fund offers exposure to this great market through devalued companies with strong dividends. Over three years, the Fund has achieved the following ranking:
Citywire US Equity Income: 1st overall
Morningstar US Large Cap Value: 2nd overall
IA North America Sector: 12th overall
Source: Sanlam FOUR and Bloomberg as at 31/03/2018.
The Fund has strong value credentials, trading at over 30% discount to the MSCI North America index, an unprecedented valuation gap. There have been difficult headwinds facing value in recent years with 120% outperformance of growth over value since the financial crisis (based on Russell Growth and Value indices) and with relative valuations at extremes not seen since the dot com era.
Against these odds, the team have delivered very positive results over the past three years through strong stock selection under conditions not typically suited to their style. It reinforces the benefits of active management. By focussing on the sustainability of the dividend, the team introduce a strong quality and risk management overlay to their value style of investment.
For investors, this offers upside participation exposure to the most dynamic economy in the world with better downside protection should we be entering more turbulent times!
The fund invests geographically in a narrow range, there is an increased risk of volatility which may result in frequent rises and falls in the Fund's share price.
Source: Bloomberg from 31/12/2008 to 31/03/2018.
Past performance is not a guide to future performance.