SHOPAHOLIC
Manager liked U.S. retail stocks before, but now he loves them.
Jeff Burchell was pretty excited about the U.S. consumer discretionary sector before oil prices began to fall sharply. Now that they have, the co-chief investment officer at Aston Hill Asset Management, is even more so.
“In our view, it’s not just an oil trade,” Burchell said. “It’s a combination of the value we see in these stocks, and the underlying fundamentals of the U.S. consumer.”
Specifically, the portfolio manager of the Aston Hill Capital Growth Fund noted that low-end consumers are starting to “wake up” and spend after nearly a decade and a half of having low disposable incomes.
In Canada, Burchell considers the consumer trade very crowded, labelling most non-resource, non-financial stocks “pretty rich.” But as long as the fundamentals in the U.S. continue to improve, he thinks such stocks south of the border have yet to reflect the potential returns.
“If we start to see consumer stocks consistently beat earnings expectations, and earnings estimates get revised higher, then we see this sector turning into a much stronger GARP-like momentum trade,” the manager said.
However, Burchell noted that a fundamental shift such as this doesn’t happen over- night, or even in a couple of months.
“We’re at the front end of improving fundamentals,” the manager said.
If this consumer discretionary trade pulls back, the manager uses an active put strategy in place to protect the fund. He has similar put positions in other sectors, as well as the broader market, to further reduce volatility.
Another protection tool is hedging. At present, the fund is fully currency hedged, eliminating any U.S. dollar exposure. Burchell expects a “day of reckoning” sometime in 2015, where the Canadian dollar reverses course and begins to appreciate.
“That will mean pretty bleak statements for many investors,” he said, adding that this theme should grow in importance later in the year.