The Tribeca Alpha Plus Fund Monthly Report for May 2017 has been released and in it, portfolio manager Sean Fenton says the domestic growth outlook is deteriorating.
In his commentary on the outlook, Mr Fenton says:
- The domestic growth outlook is deteriorating. There is stronger evidence that the housing cycle has peaked and this is likely to be reinforced by APRA’s efforts to rein in aggressive mortgage lending.A heavily indebted household sector that is experiencing flat to negative real income growth and has drawn down its savings rate is unlikely to fill the gap in growth. Further downside risk to the economy may emerge if the current tightening in mortgage lending standards pushes house prices lower and generates negative equity effects. How this plays out remains uncertain as interest rates are at record lows, preventing much corporate sector stress and the currency remains a viable source of adjustment.
- In terms of portfolio positioning, we continue to maintain an underweight to interest rate sensitive sectors as the Fed moves to a more hawkish stance and the ECB approaches QE tapering.
- We are comfortable with the US growth profile and maintain overweight positions to US cyclicals and US$ exposed stocks and the cyclical recovery in Europe is also now strengthening.
- The resources sector momentum is fading and we have moved to a neutral position.
Domestically, we are positioned more defensively in gaming, health, telecommunications and select industrials. We have moved underweight the banks in the wake of the new levy and with the likelihood of APRA further increasing capital requirements.