Monthly video update – January 2018

In this update, Mark Whitehead, Portfolio Manager, assesses the change in US federal income tax and opportunities for dividend growth in the tech sector.

11 January 2018

Securities Trust update - January 2018 Play Play Video
Mark Whitehead with an update on Securities Trust - January 2018

What caught your eye this month?

  • In the US, the first major overhaul of federal income tax in 30 years was passed by Congress.
  • As a result, the corporate tax rate will be lowered from 35% to 21%, incentivising companies to invest more on American soil with the aim of creating jobs and lifting wages.
  • Who will benefit? Domestic companies with a highest percentage of revenues generated in the US look set to be the clear winners, but global conglomerates, such as those in the tech sector will also profit from large write downs of accrued taxes on their offshore cash piles.

What currently interests you?

  • We are increasingly seeing attractive opportunities in the tech sector, where earnings and dividend growth estimates for 2018 and 2019 are among the highest in the market.
  • For instance, one of our holdings in the strategy, a world-leading leading semiconductor manufacturer, recently increased its dividend by a whopping 72%.
  • This is an interesting and potentially very positive development, as technology companies have typically paid a lower dividend versus the market and would therefore normally pose a problem for income funds to own.

What is the outlook for the next few months?

  • Economic conditions have been strong in the past year, and we expect this to continue into 2018. The US could accelerate the fastest with business activity rebounding, capital expenditure improving and a resurgence of Keynes’ ‘animal spirits’, as corporate tax changes are implemented.
  • Meanwhile, cyclical sectors, should continue to perform well, driven by the industrials, materials, technology and financials sectors.