Eiswert: My 3 Favoured Sectors For 2017

February 2017
David J. Eiswert , Portfolio Manager

Executive Summary

In this video, Dave Eiswert shares where he sees opportunities and risks in 2017 and highlights the three sectors where he’ll be hunting with a little bit more intensity this year.

I've been with T. Rowe for about 13 years. I started as an analyst covering technology companies. I moved my way into running our Global Technology sector for four years, and then ultimately was assigned to run the Global Focused Growth Strategy.

 

Where do you see opportunities and risks in 2017?

 

You know, it's been a very long expansion and I think that it's been very frustrating to investors, people who think a recession is around the corner or people who think growth is right around the corner, so it's been a very frustrating five, six, seven years for investors. You've had to be very focused on picking the right stocks.

 

Now, you know, post the election in the United States you have a lot of excitement about the United States, you have a lot of excitement about owning things where people think Donald Trump will benefit those investment ideas, and that's a good place to be, and we have been in many of these ideas.

 

But I think right now when you're looking out at 2017 and 2018 you really need to be looking a little bit deeper. You need to be looking at the second derivative of what is happening in politics in the west, in the United States and in Europe, and what we really think is happening is that voters are now saying they've had enough of QE, they've had enough of stagnation, and that trend around democracies is really forcing change in the political world which then has a reflection on economics.

 

Europe is very interesting to us in 2017. The US will continue to have good places to be, but Europe is very interesting because we think in France you could see a change in government that leads to a very positive development for the French economy.

 

Italy is much more of a wild card and the question will be whether Italy can figure out a way to follow France. The French elections are in April and May of next year, so we think there -- this could be a time going into 2017 where active investors want to look maybe at areas that have not been as successful as the United States.

 

We've been very overweight the United States in the last four years that I've run this strategy. Today we're more neutral and we're looking for opportunities to make money next year. Japan is also somewhat attractive to me now. It's been kind of out of the spotlight. It's very levered to the weakening of the currency or the strong dollar has a positive impact on Japanese exporters, so we own more Japan than we've owned in a long time. Again, down to very specific ideas, but Japan looks attractive heading into next year.

 

Tell us your thoughts about the impact of the US election on investment markets

 

You know, I think as I mentioned before as a broader issue people are tired of stagnation, they're tired of QE, they're tired of, you know, sort of getting academic prescriptions to stimulate growth and they want real change, and we're seeing voters in democracies push for that change.

 

And this is terrifying on one -- from one perspective because, you know, nationalism can lead to a lot of scary things. It's positive in another sense because it's forcing a different strategy or different tact to address the very low growth that we've seen around the world, so we're cautiously optimistic that these democracies will push for higher growth, less regulation, more change.

 

We're cautious in the sense, is does this increase the competitive intensity around the world, the United States relationship with Europe, the United States relationship with China, European countries relationships with each other. This increased competition, increased urgency to change can lead to risks, and so we're very aware of that.

 

But we think the US election, the Brexit in the UK, the elections we're going to see in Europe in the next year and really even Abenomics, right, was in some way a reflection of we want something different. Those things are voters pushing back against quantitative easing, pushing back against stagnation.

 

I think that will create some very interesting opportunities, but we need to be cautious, we need to be careful because in history this kind of populism and nationalism can often lead to conflict, so what we would hope is that it doesn't lead to conflict, but it leads to a new outlook on how to grow and we want to participate in that.

 

And so far I think that's the direction that we're headed. So far I see things -- this is somewhat positive and really competitive pushing for growth and pushing for dynamism in economies and I think that's good for active investors.

 

What are the key investment sectors in 2017?

 

I mean, for us we always find technology, consumer discretionary, health care interesting areas because those are areas that have a lot of change and we look to be on the right side of change, we look to take advantage of how industries are changing, so I think those will continue to be areas of focus for the way we run the strategy.

 

We want growth ideas, we want global addressable markets, and we want changing industries, so those will continue to be places that we hunt for great ideas. Health care I think is particularly attractive right now. We've had a couple of years of disappointment in health care, and so -- and there's a tremendous amount of sector rotation today towards financials and materials and industrials and away from health care and technology, and so I think you want to be a little bit carefully contrarian there.

 

So I think there's probably some very interesting ideas to capture early in 2017 in health care and probably technology, and it would lead me to fade a little bit some of the financials and basic resources because they really have run ahead of the actual numbers and that makes me a little cautious, not that I'm not going to own those areas but I'm really hunting with a little bit more intensity in the health care and technology, consumer discretionary areas.

 

2016-GL-5376

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