Quilter Cheviot’s Managed Portfolio Service (MPS) has initiated a dedicated allocation to US small- and mid-sized companies in its latest portfolio changes.
MPS managers Simon Doherty and Antony Webb have introduced a modest allocation to the Artemis US Smaller Companies fund within their US equity ‘Building Block’ – the MI Quilter Cheviot North American Equity Fund.
The decision to initiate a dedicated investment in US ‘small cap’ stocks this April comes after a prolonged, intentional ‘underweight’ allocation to this segment of the market.
A fall in interest rates later this year would result in an environment which tends to favour smaller, domestically focused businesses, as does a recovery in consumer confidence. Furthermore, Doherty and Webb believe recent government-led initiatives, such as the Inflation Reduction Act, are likely to benefit domestic companies at a time when valuations in these firms look particularly attractive versus the broader market.
Meanwhile, in its US exposure, Quilter Cheviot has also topped up its positions in Nvidia and Meta, while at the same time reducing holdings in Alphabet and food giant Mondelez.
Elsewhere across the strategies, infrastructure has been selectively added to as it is an asset class that the team expects to continue to provide a number of opportunities for long-term investors. Finally, within the Quilter Cheviot European Equity Fund, there were small adjustments, as existing bank and energy positions were added to, whilst consumer staples and real estate names were trimmed.
Quilter Cheviot said its MPS utilises a “unique” Building Blocks structure – a range of funds designed and actively managed by Quilter Cheviot for use within its MPS. Each Building Block fund is designed to provide specific geographic or asset class exposure, and invests in a combination of direct equities, bonds or external fund holdings.
Antony Webb (pictured), head of MPS Investment Funds at Quilter Cheviot, said: “While interest rate cut expectations have certainly come down since the start of the year, the market is still looking at one or two cuts for this year before falling further next. As such, we feel it is prudent to begin adding to companies that we believe will have quite a strong reaction when these rate cuts arrive.
“Despite a period of sustained relative weakness versus large-caps, US small-caps look particularly well primed, with the US economy holding up well and a backdrop of very accommodative federal spending, regardless of who is in charge.
“The Artemis US Smaller Companies fund we have added to our North American Building Block offers a clear, consistent and historically successful approach to ‘small cap’ investing that is complementary to our other, largely stock-specific ideas within the allocation.
“We also continue to see good value in selective alternatives, particularly listed infrastructure. These investment trusts have been at a wider than usual discount in the past 18 months and although they have narrowed recently, we continue to see an attractive long-term return profile from these holdings.”
