The rise of the USD is starting to impact some sectors

In the first fortnight, investors were rather cautious, with deflationary/recessionary worries picking up. Investors were particularly concerned about ‘external shocks’ that could hurt the US growth scenario such as weak foreign growth, the strong US dollar and lower oil prices. There was then some relief when the European Central Bank announced new easing measures.

The publication of some weak data also revived concerns about the US growth scenario. The advance estimate of Q4 GDP indeed grew at an annualized rate of 2.6%, below consensus expectations of 3%.
The statement following the January FOMC was optimistic about the economy, upgrading its assessment of economic growth and the job market, and relatively relaxed about the inflation outlook. At the very end of the month, oil prices (and related stocks) rebounded sharply.

• US companies (mainly exporting ones) are beginning to be negatively impacted by the strong USD. US consumer companies (Consumer Discretionary, but also Consumer Staples) will benefit from lower oil prices. However, we clearly prefer Consumer Discretionary to Consumer Staples, given the cyclicality of the sector.
• Sector-wise, we are focusing on US companies that have a high correlation to the domestic market.
• Although we have slightly reduced our weights in IT, we are still convinced by the sector’s potential. The IT sector suffered from lower-than-anticipated earnings and guidance due to the strong appreciation of the USD. However, after January’s sector performance, the impact of the USD appreciation now seems priced in.
• In stock selection, we additionally focused on dividend yield.
• We have, though remaining positive, slightly lowered our grade for the healthcare sector, mainly based on the valuation of big pharmaceutical companies. We continue to have a strong focus on healthcare equipment with positions in, for instance, Abbot.