While investors are concerned about whether trade tensions between the US and China will continue to be an investment risk this year, San Diego-based Forsyth believes it’s a low risk.
“That risk was present throughout the vast majority of 2019 and markets still went straight up.
“So there is no evidence that trade headlines would equate to market underperformance,” he told FSA during a recent visit in Hong Kong.
He also believes that there is a possibility that the US equity market can provide double-digit returns this year on the back of a positive earnings outlook.
“With 10% earnings growth rate, could the US equity market produce double-digit returns? It doesn’t mean it is going to happen. But it is more likely that it will happen,” he said.
Other fund managers also hold positive views on the US markets.
Tan Hui, Asia chief market strategist at JP Morgan Asset Management, believes that while US equities, especially technology stocks, are expensive, they will deliver strong earnings growth this year, which will drive markets higher.
Grant Bowers, portfolio manager for US equities at Franklin Templeton, also believes that US equities should perform positively this year. However, he warned that investors should not expect the same returns that the asset class delivered in 2019.
In terms of sectors, Allianz GI’s Forsyth likes technology, consumer and healthcare.
“Anything related to 5G and streaming services, these are all interesting ideas just from the standpoint that there will more infrastructure and capital expenditure spending this year than last year. The consumer and healthcare stories continue to do well,” he said.
The income and growth fund
Forsyth manages the firm’s Income and Growth Fund, which is a US-focused mixed-asset product that has three sleeves: equities, high yield bonds and convertible bonds. He said that 20 analysts who are dedicated to managing the product provide support.
The fund’s investment mandate requires each sleeve to account for one-third of the portfolio, with the aim of producing income as well as capital appreciation.
“The sources of income come from several sources, which include the coupon from high yield, coupon from converts, dividends from stocks and the capital gains from any of those three sleeves,” Forsyth explained.
For the product’s equity sleeve, Forsyth said he prefers companies with earnings growth rates higher than the market average, noting that companies are compared against their industry peers.
“Each industry will have a different growth rate, so companies are benchmarked against their industry peers.”
Turning to high yield, he prefers quality bonds, with credit ratings of B to BB that have a better yield compared to the market. He avoids distressed or CCC bonds.
The US high yield market, however, is unlikely to produce the same kind of returns this year compared with 2019, he added.
“We do not expect interest rates to fall materially in 2020. Therefore the tailwind that led high yield to double-digit returns in 2019 is not likely to repeat in 2020. We expect coupon-like returns this year.”
For convertibles, he likes those that have “an asymmetric risk-reward” to equities.
“What that means is that when a stock price moves 20%, the price of the convertible stock should participate 80% on the upside, but just 40-60% on the downside.”
The Allianz Income and Growth Fund
The fund versus the mixed-asset category in Hong Kong
