Investment - Articles - US debt agreement - investment company managers comment

 9% of AIC members have 20%+ exposure to US

 The US today agreed a deal to increase its debt ceiling and prevent a default on its national debt. A lack of political unity on the issue has created uncertainty, although markets have rallied following today's tentative agreement to increase the debt ceiling and decrease spending over the longer-term. Illustrating the significance of the US market, more than 9% of AIC members have 20% or more of their assets invested in the US. The Association of Investment Companies (AIC) has asked managers with significant holdings in the US to share their views on the prospects for investing in the region.

 Too Big to Fail

 Despite the drawn out discussions in Washington, managers are confident that the importance of the US market and its liquidity will prevent any loss of value.  Jeremy Tigue, manager of Foreign & Colonial Investment Trust said: "The outlook for investing in the US economy is uncertain because of last week's political stalemate in Washington but, as this is now resolved, attention will move on to another issue. Any downgrading of debt would have been likely to be a short-term problem as there is no other market as large and liquid as the US for investors to switch into."

 David McCraw, manager of Edinburgh US Tracker Trust plc commented: "There is a risk that an excessively austere US budget deal will bring the US economy to a ‘sudden-stop'. On balance though, it seems unlikely to us that any budget deal will jeopardise growth much during a presidential election year, and so we remain sanguine about immediate economic prospects. Importantly the US is home to the largest global equity market and some of the world's highest-quality companies and strongest brands."

 However, there are still challenges to be faced, as Mark Urquhart, manager of Edinburgh Worldwide Investment Trust recognises: "The US economy has slowed over recent months and employment figures for last month were disappointing.  However, forecasts for US corporate profits are improving on the back of cost-cutting and overseas earnings, which have been helped by a weak dollar and demand from resource-rich developing nations."

 Technology driving output

 Jeremy Tigue, manager of Foreign & Colonial Investment Trust said: "The outlook for US companies looks good. Many technology companies are seeing rapid growth but sell at a discount to the market as a whole. The biggest US companies are awash with cash, most of it held outside the US, and smaller companies are able to grow in a single market with one language and one legal system with a freedom companies in other markets can only dream of. Finally, one should never forget the three key strengths of the US - a growing and relatively young population, abundant natural resources and world leadership in technology."  

 David McCraw, manager of Edinburgh US Tracker Trust plc added: "Because markets are still quite defensively positioned, the US equity market could rebound if global manufacturing recovers its poise. So it's encouraging that the US seems to be on the cusp of a pickup in activity. With Japanese related supply constraints easing, we should see inventory re-stocking and decent capital expenditure - and idled factory workers should soon be boosting employment figures."

 Mark Urquhart, manager of Edinburgh Worldwide Investment Trust said: "In terms of EWIT's US holdings, early indications from the corporate reporting season are of booming earnings at several of them: Google's growth rate has accelerated above 30% as the volumes of search queries continue to increase, especially from mobile devices; Apple beat expectations by $3.5bn at the sales line, having sold every iPad it could manufacture as Asian sales rose sixfold; Amazon is growing at its fastest rate for 10 years; and Intuitive Surgical continues to see very strong procedure growth as surgeons adopt their machines."

  Investment company holdings in US (over 20%)