Industrials, global cyclicals looking good
Jeff Burchell, co-chief investment officer at Aston Hill Asset Management, views cash as an asset class that allows him to sit on the sidelines until the right opportunities to use that capital arise.
The cash position in the Aston Hill Capital Growth Fund fluctuates between 20% and 60%, but after peaking near the upper threshold in October, it’s now around 40% as Burchell takes a more bullish approach.
“Despite the bad weather in the first quarter, the U.S. economy is humming along at the fastest rate since the credit crisis began in 2008,” he said. “We’re firm believers that to get the stock market call right, you have to get the economic call correct. If you look at 100 years of data, that’s pretty much the rule.”
Although bad winter weather threw a bit of a monkey wrench into his 2014 GDP outlook, the manager noted that normalized levels of economic activity are starting to show gains.
“It’s not really in all the data yet, but you can start to hear it, see it and feel it as a fundamental equity analyst,” Burchell said.
The manager noted the broader economic recovery is being driven more by government and corporate spending. He pointed out these segments, which have stagnated for several years, are creating opportunities in areas such as non-residential construction and infrastructure.
“Companies that are levered to these areas should continue to have betterthan-expected results,” Burchell said.
He also likes global cyclicals, anticipating lots of earnings upside as U.S. and global GDP rises. Some of the fund’s holdings include power management company Eaton Corp. and United Technologies Corp., which provides products and services to the building systems and aerospace industries.
“We like the industrials as U.S. manufacturing is doing well,” Burchell said.
The manager also noted that after hedging 100% of the fund’s currency exposure recently, he is looking at going more long the U.S. dollar.
“The Canadian dollar has rallied a lot since March, but I think the long-term trend is towards a more favourable U.S. dollar,” he said, noting the loonie has represented a headwind of about 4.8% from its recent peak to current levels. “You have to do a lot of good stock picking to make that up.”