Amid fears of an overheated market and uncertainty around Trump’s presidency, Mark Sherlock, Lead Portfolio Manager of the Hermes US SMID Equity Fund, believes there are still great investment opportunities to be found in the US small and midcap space.
A market driven by fundamentals
Year-to-date the Russell 2500 has returned circa 5.0% (compared with c9% for the S&P 500 Index). At a sector level, there has been a rotation out of some of the beneficiaries of the so-called “Trump trade” (banks, industrials) into parts of the market (healthcare, technology) which relatively underperformed in the post-election euphoria of Trump’s pro-growth policies. This rotation reflected the weaker economic data coming through in February and March and acknowledged a realisation that many of Trump’s policies are controversial and will likely require compromise. At the same time an improving European economy and Macron’s victory in the French Presidential election have seen investor interest switching from the US. These factors make for a better set up for the asset class- a market driven by fundamentals rather than one based on the expectation of political stimulus.