Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Strong dollar will damage US tech, warns AB’s Feuerman

Strong dollar will damage US tech, warns AB’s Feuerman

President-elect Donald Trump’s new policies, in conjunction with a strong dollar, could be a headwind for the tech sector in 2017.

That is the view of AllianceBernstein’s Kurt Feuerman, who runs several funds at the firm including the AB SICAV I-Selective US Equity fund.

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.'

Industrials

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.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Alternative Ucits Retreat 2017

    Citywire Alternative Ucits Retreat 2017

  • Citywire Milan 2017

    Citywire Milan 2017

  • Citywire Paris 2017

    Citywire Paris 2017

  • Citywire Deutschland 2017

    Citywire Deutschland 2017

  • Citywire DACH 2016

    Citywire DACH 2016

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016

  • Citywire Berlin 2016

    Citywire Berlin 2016

  • Citywire Switzerland 2016

    Citywire Switzerland 2016

  • Citywire Amsterdam 2016

    Citywire Amsterdam 2016

  • Citywire Montreux 2016

    Citywire Montreux 2016

  • Citywire Deutschland 2016

    Citywire Deutschland 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Munich 2016

    Citywire Munich 2016

  • Citywire Paris Alt Ucits 2016

    Citywire Paris Alt Ucits 2016

  • Citywire Zurich Alt Ucits 2016

    Citywire Zurich Alt Ucits 2016