Commentators may be fretting about the US stock market and currency being overvalued, but the economic backdrop in the country itself continues to look encouraging. My US exposure-stock screen attempts to tap into prospects across the pond by picking shares in large companies listed on the London market that are doing plenty of business in the States. Helped by the tailwind of a surging dollar, the strategy put in a good performance last year delivering a 14 per cent total return from six stocks compared with 9.7 per cent from the FTSE 350.
| Name | TIDM | Total return (25 Mar 2014 - 30 Mar 2015) |
|---|---|---|
| Micro Focus | MCRO | 56% |
| Reed Elsevier | REL | 33% |
| Essentra | ESNT | 22% |
| Victrex | VCTA | 4.1% |
| Bodycote | BODY | 2.3% |
| Weir Group | WEIR | -29% |
| FTSE 350 | - | 9.7% |
| Average | - | 14% |
Source: Thomson Datastream
Since I first ran the screen in 2012, it has delivered a 47.5 per cent total return compared with 38.2 per cent from the index. Factoring in a charge of 1.25 per cent to account for dealing costs the cumulative total return drops to 42.1 per cent. While the longer-term performance of the screen to date is decent, and last year's outperformance was good, it's fair to say that the results from this screen have not been massively impressive since I began running it in 2012. I am therefore tinkering with it slightly this year. Screening criteria aside, the key concern with the screen this year has to be the market's increasingly commonplace fears that the dollar has become overvalued and could fall sharply, with a corresponding effect on UK companies with significant dollar-denominated earnings.
US exposed shares vs FTSE 350
Source: Thomson Datastream
The key criteria of the screen is that the stocks selected must derive at least quarter of their sales from the US. This basic requirement aside, the screen can be viewed primarily as a momentum screen. The idea behind using momentum to identify interesting stocks is that a fast-rising share price acts as a broad indication that investors believe a company's shares and end markets show promise. In my opinion, momentum's broad-brush approach fits well with a screen that is concerned with geography ahead of stock-specific fundamentals.
The screen also looks at several measures of quality in its efforts to identify promising shares. It is these quality measures I have tinkered with this year. I've changed them so that this screen now mimics the criteria used by another one of my geographically focused screens: the Best of British screen. The screens were fairly similar previously but the performance of the Best of British screen has tended to be more impressive than the US Exposure screen on the whole. The full screening criteria is:
■ At least one quarter of revenue from US. ■ Three-month share price momentum better than FTSE 350. ■ Return on equity of more than 10 per cent. ■ One-year beta of less than 1. ■ Forecast EPS growth in this and the next financial year. ■ Better-than-average five-year compound annual growth rate (shorter periods have been used where a full five-year record is unavailable). ■ Net debt of less than 2.5 times cash profits. |
I've screened all members of the FTSE 350, although, only 50 stocks had the necessary data on their geographical-revenue split to be screenable. Only four stocks passed all the screen's tests and I've provided brief write ups below. Given the low level of qualifying stocks, I've also included a table with the details of a further eight stocks which failed one of the screen's seven tests.
