- High conviction position relative to peers and world equity indices
- Reflects belief that the US economy has entered the expansion phase
- Tightening of monetary policy will start to hold back equity prices
Peter Elston, chief investment officer, Seneca Investment Managers, says:
“The growth phase of any business cycle is made up of three sub-phases: ‘recovery’, ‘expansion’ and ‘peak’. The reduction in our US equity weighting to zero reflects the belief that the US economy has entered the expansion phase, during which the tightening of monetary policy will start to hold back equities prices.
“We’re at the point in the cycle when equity returns should start to fall, albeit remain positive, and the move to zero weight in US equities is consistent with the reduction in the Company’s overall equity weighting over the last year. Having moved from overweight to neutral, we are planning to move to an underweight position in equities, starting with the US.
“Other developed economies such as the Eurozone, Japan and the UK are still in recovery phase, as evidenced by interest rates that have yet to be increased. On a valuation basis, we also believe US equities look expensive relative to equities elsewhere.
“The reduction to zero in the US is more a relative call than an absolute one as it’s possible that US equities can continue to rise. However, the reduction is also based on the belief that the US dollar has turned – the possibility of interest rate increases in the medium term in other developed markets such as the Eurozone and the UK argue for strength against the US dollar in other currencies.
“As active managers, it’s essential we take high conviction positions to provide our investors with products that have the potential to deliver strong performance after fund costs. Our investing style, Multi-Asset Value Investing, is designed to then achieve this potential.
“The asset allocation calls we have taken in the last year have resulted in strong returns with the Company up by 25.5% in NAV terms* versus a benchmark increase of 3.5% and a sector return of 15.6%.”
Source: Morningstar data for SIGT and AIC Flexible Investment Sector NAV returns for the year to end June 2017
Past performance should not be seen as an indication of future performance. The value of investments and any income may fluctuate and investors may not get back the full amount invested.
The views expressed are those of the fund manager at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca and do not constitute investment advice. Whilst Seneca has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content.
Before investing in the Seneca Global Income & Growth Trust plc you should refer to the latest Annual Report for details of the principle risks and information on the trust’s fees and expenses. Net Asset Value (NAV) performance may not be linked to share price performance, and shareholders could realise returns that are lower or higher in performance. The annual investment management charge and other charges are deducted from income and capital.
This communication provides information for professional use only and should not be relied upon by retail investors as the sole basis for investment.
Seneca Investment Managers Limited (0151 906 2450) is authorised and regulated by the Financial Conduct Authority and is registered in England No. 4325961 with its registered office at 10th Floor, Horton House, Exchange Flags, Liverpool, L2 3YL. FP17/324