US recovery will follow fiscal cliff resolution, survey on fund managers finds

Fund managers are convinced that the US has a fair chance of recovery once the looming fiscal cliff issue is resolved, according to research published today by S&P Capital IQ.

“Concerns over the looming US fiscal cliff have influenced market behaviour and had an impact both on short-term investment decisions of US equity funds and long-term expectations,” S&P Capital said.

Fund managers are concerned about the long-term drag on the US economy as determined by agreed tax increases and spending cuts. In the short term, portfolio managers believe that the government will take action before the year-end to head off the fiscal cliff, but they expect difficult decisions regarding increased taxation and spending cuts to spill over into 2013.

In view of the continued insecurity, portfolio managers have focused on structural growth names and companies that are able to grow through self-help. They have also focused on high-conviction stocks, which in some cases led to a reduction in the total number of holdings, as seen in the BNP Paribas L1 Opportunities USA and the Neuberger Berman US Large Cap Growth funds.

Managers focused on the longer term are generally maintaining their discipline and using the opportunity to purchase more of their favoured names as prices become attractive.

“While the exact timing of the US recovery is as yet uncertain, there is clear potential for the US equity market to move forward significantly once the fiscal cliff has been avoided and investors again focus on future growth,” research found.
Although this is expected to decrease, S&P Capital IQ GDP estimates for 2013 stand at 2.3%.

“Should the fiscal cliff be avoided, the US recovery is widely accepted as being sustainable, given the relative health of the financial system, a clear move off the bottom in terms of the housing market, low energy costs, and the likelihood of continued accommodative interest rate policy,” S&P Capital added.

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