President-elect Donald Trump’s new policies, in conjunction with a strong dollar, could be a headwind for the tech sector in 2017.
Speaking to Citywire Selector, + rated Feuerman, who currently has a 22.07% allocation to IT, did state tech companies could benefit from a potential repatriation bill.
'Following the US presidential election, the market experienced a large-scale rotation away from defensive sectors and technology in favour of beneficiaries of corporate tax reform, a stronger US dollar, increased fiscal spending, and improved US economic growth.
'While we believe many technology companies stand to benefit from a potential repatriation bill, this was a consensus view leading into the election,' he said.
Feuerman currently holds big tech names such as Alphabet (5.27%), Apple (3.22%), Microsoft (2.63%) and Cisco Systems (2.42%). He believes big companies such as these could be hit by new policies.
'It would be likely that many multinational technology companies will see little benefit from a reduction in US corporate tax rates and may be negatively impacted by increasing dollar strength.'
Financials in favour
Elsewhere, Feuerman championed financials, which make up 16.92% of the fund, and singled out financial services firm US Bancorp, which is an 8.58% allocation in the fund.
'We believe US Bancorp is a high quality, best-in-class franchise that is extremely well managed. The company has also been able to grow EPS very modestly in 2015 and 2016 – a time when many banks have been showing earnings declines.
'USB is well positioned to participate as business conditions improve; the recent increase in interest rates is already helping.'
Feuerman said banks may have the opportunity for years of impressive earnings growth given the results of the US election.
'The Republican sweep means we expect a passing of meaningful legislation in the first 100 days of the Trump presidency.’
'Lower corporate taxes and significant fiscal spending seem likely to increase economic growth and possibly in a very big way. We believe banks are pure plays on faster growth in America.'
With 12.82% allocated to industrials, Feuerman champions global security company Northrop Grumman, which he currently holds a 2.49% allocation to.
'Northrop Grumman certainly has been a strong performer this year. The company’s drone programme is primarily focused on surveillance and is a strong driver of growth for the business, however, we do not think this has been a major factor behind the underlying stock performance.
'There are a number of reasons that we favour Northrop, for one thing, defense spending is at a low point and could grow for many years to come. We also believe the company has virtually no risk from a strong US dollar since its revenues are almost 100% in dollars.'
Feuerman said the firm has a strong balance sheet and a robust cash flow, which would benefit from raising interest rates due to the level of pension expenses in the industry.
The AB SICAV I-Select US Equity fund returned 20.21% in USD terms in the three years to the end of November 2016. This compares with a 29.75% rise by its Citywire-assigned benchmark, the S&P 500 TR, over the same time period.