US share market far from bubble territory, T. Rowe says
The US equity market is “far from bubble territory” and valuation is not going to be the factor that end’s the bull market’s run, portfolio manager of the T. Rowe Price Global Equity Fund, R. Scott Berg, told a lunchtime audience in Sydney on Monday.
While the US equity market was sending up several “yellow flags,” including a slowing of corporate earnings growth and rising interest rates, the market still had a lot of things going its way, Berg said.
Even taking into consideration Trump’s tax cuts and low unemployment, the US economy still had plenty of room to run considering US GDP growth was only 3 per cent, which was pretty “lukewarm” from an historical perspective.
“Valuation is not going to end this bull market run … I don’t think the (US) market is as expensive as many people perceive it to be,” Berg said.
Berg pointed out that the price/earnings ratio (P/E) of the S&P 500 has only risen from 15 times after the “tech wreck” in 2002, to roughly 16 times earnings today, and that given the strength of US corporate earnings, the market should not be trading at such an “average historical multiple”.
However, when it came to finding growth in the tech sector in what is a low-growth world, Berg emphasised the importance of being “on the right side of change”.
In other words, it is important to select tech stocks that meet certain criteria, including: having a unique and transformative invention; a large addressable market; a great business model; a visionary founder and capable CEO; related and valuable call options; and a reasonable valuation.
Stocks that Berg believed met these criteria included Tesla, in addition to companies that were leading the way in AI and machine learning, such as Google, Alibaba and Amazon.
However, he was quick to point out that his strategy did not equate to making a singe bet on the “FAANG” stocks, with some of the funds best performers being some less well-known tech plays such as accounting software player Intuit, and German electronic payments firm Wirecard.
Recommended for you
Nuveen has made its private real estate strategy available to Australian wholesale investors, democratising access to a typically institutional asset class.
VanEck is expanding its fixed income range with a new ETF this week to complement its existing subordinated debt strategy which has received $1 billion in inflows this year.
Specialist global equities manager Nanuk has celebrated 10 years of its flagship New World Fund and is actively considering its next possible vehicle.
Australian equities manager Datt Capital has built a retail-friendly version of its small-cap strategy for advisers, previously only available for wholesale investors.
