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It is a good time to invest in US equities

David Pyle, portfolio manager of the Robeco BP US Large Cap Equities Fund, believes that now is a good time to invest in US equities despite the record index levels.

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David Pyle, portfolio manager of the Robeco BP US Large Cap Equities Fund, believes that now is a good time to invest in US equities despite the record index levels. Here’s why:

  • The markets are shifting towards a more fundamentally driven approach. Over the past several years, markets were trading with two driving forces behind many share price movements: the hunt for dividend yield to replace fixed income (income focused strategies) and the search for safety (low beta, conservative strategies). This led sectors such as Utilities, REITs and Consumer Staples to be traded to levels nearly 30% higher than their historical average despite very little growth seen in these businesses. In the past few months, we’ve seen these trades unwind a bit with these sectors lagging the market, but even with the shift away from these sectors, they are still trading well above historical averages. Other areas did not hit record highs and still trade at an attractive level such as the Banks which are at approximately 13 time earnings and high free cash flow generation businesses in Basic Industries and Technology.
  • The continued noise in the investment world regarding worldwide political change provides opportunities for a bottom up manager like Boston Partners. The volatility and speculation seen in market reactions to these events gives us the chance to purchase stocks at discounted levels despite little change within the business. We understand what is happening and we know it will eventually effect some businesses, but instead of obsessing over polls, referendums and items mentioned in campaign speeches, we continue to look at the individual businesses and assess their near term prospects. We believe this is a much easier outcome to predict than it is to try and predict who will win an election and what the long term effects will be.
  • Another reason to invest in our US equity funds today is the strong likelihood of corporate tax reform in the United States. It has been pointed out many times that businesses in the US are already at all time margin levels and that could be a reason to avoid this region until margin upside or valuation support is offered. if corporate taxes are lowered to the generally agreed upon figure of 20%, this will be a massive help to the bottom line of many businesses. For those with a large share of total revenues generating from the US, tax rates are high and the direct effect will be quickly realized. Additionally, this tax policy change would incentivize many businesses that have been parking cash overseas to avoid taxes (currently US corporate taxes are among the highest in the world). This could lead to further shareholder friendly capital allocation policies from some of the world’s most cash-rich companies.

David Pyle , December 2016

Article also available in : English EN | français FR

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