He says: “In a risk-on environment, the dollar tends to be weak, but in a risk-off environment, it tends to be strong. If I think dollar strength is going to last for some time, then I lean into it. I can do that by buying companies that mostly earn their revenues within the US.
"The sorts of US equities that suffer as a result of the stronger dollar are those which earn substantially from overseas. Right now, that would include the big US technology companies.
"The banks should do well in a rising interest rate environment, but that has not happened this time, and that’s because what we have now in the US is a consumer-led downturn, and the Federal Reserve have been increasing rates into that downturn, which is not usual.”
He says the dilemma facing US equity investors is that many of the companies with the greatest exposure to the US domestic economy are small and mid-cap stocks, but those are suffering in performance terms as a result of the general risk-off environment, which is prevalent.
Richard De Lisle, a US equity fund manager at De Lisle Partners, says: “There is an old adage that you should invest in the bonds of a place with a strong currency and the equities of a place with a weak currency, so dollar strength is not always a bonus for US equity investors.
"I think dollar strength is going to continue, and it is going to hurt the exporters.
"But even some companies which look like they are domestically focused, such as house builders, are suffering because of the general rise in the price of lumber.
"But really, the story is that commodities are cheaper for US companies now, and cyclical companies tend to use a lot of commodities, so it is good news for them.”
David Thorpe is special projects editor of FTAdviser
david.thorpe@ft.com
