LONDON, Oct 14 (Reuters) - Tilting U.S. stock portfolios
towards companies which earn a high proportion of their profits
outside the United States will help to insulate funds against
any domestic economic slowdown, fund managers said on Thursday.
U.S. shares have fallen sharply this week as investors have
worried about climbing U.S. long bond yields and third quarter
earnings disappointments.
But even if U.S. growth stagnated, some technology and
capital goods companies would benefit from the global economic
upturn and trends such as the introduction of new technologies
like the Internet, fund managers said.
"U.S. multinationals will be some of the major beneficiaries
of global growth," said Christopher Lees, U.S. equity manager at
Barings Asset Management.
He said the concensus view that U.S. stocks were less
attractive than shares in recovering markets like Japan, Asia
and Europe ignored the fact that non-domestic earnings accounted
for around 40 percent of the profits made by companies in the
S&P 500 index <.SPX>.
He noted that oil company Exxon <XON.N> makes just 20
percent of its sales in the United States, Texas Instruments
<TXN.N> makes around a third, McDonalds <MCD.N> makes 40 percent
and IBM makes just under half.
BUT BE CHOOSY
Andrew McMenigall, who manages around $1.0 billion of U.S.
equities at Edinburgh Fund Managers, also advocated a greater
focus on stocks with exposure to non-domestic growth but only on
a stock specific basis.
"The broad brush principal of picking more multinationals is
right but effecting this strategy is more difficult," he said.
He said his firm was positive on the outlook for selective
stocks in the technology and capital goods sectors but had
recently moved from overweight to underweight in U.S. consumer
staples.
Among technology shares, the success of Microsoft <MSFT.O>
and Cisco Systems <CSCO.O> relative to companies like global
networking group 3Com <COMS.O> showed the importance of picking
only those stocks which had dominant market positions, he said.
"Such companies sell (goods) at prices which have to be more
than offset by cost cutting abilities and volume growth," he
said, noting the deflationary trend of technology prices.
Rupert Della-Porta, U.S. fund manager at Hill Samuel Asset
Management, said global technology spending was picking up both
due to a better economic outlook but also due to secular changes
in the use of technology.
Stocks like Cisco would benefit from both.
"The only way you can play the de facto leader in global
network routing and the Internet backbone is through Cisco.
There is no European or Asian equivalent," he said.
Elsewhere, stocks like Caterpillar <CAT.N> would benefit
from a global cyclical recovery, helped by higher spending by
energy, forrestry and mining companies as they move to catch up
with the investment cycle, said Della-Porta.
He agreed with McMenigall that the main sector to avoid was
consumer staples, naming stocks like Coca-Cola <KO.N>, Gillette
<G.N> and Avon Products Inc <AVP.N>.
"A lot of the consumer products companies which are the
traditional way of playing global growth are not working.
Technology has replaced consumer products as an area of U.S.
domination and American capitalism at its most successful and
almost able to self-sustain its growth," he said.
((London Capital Markets +44 171 542 5113 fax +44 171 583
7239 email: andrew.priest@reuters.com))
REUTERS |
