Tap into strength of U.S. consumers

American consumers have healthier balance sheets than domestic consumers, due to the amount of deleveraging they’ve done. Plus, there are signs of employment and wage strength in the U.S.

As a result, investors can find more opportunities in the U.S. consumer discretionary and consumer staples sectors, says Jennifer Law, vice-president and portfolio manager of Canadian small caps at CIBC Asset Management.

Read: U.S. consumers craving luxury products

“The amount of available targets has increased due to the valuation pullback we’ve seen in the U.S.,” she says. “What we found in 2015 was that [U.S.] valuations weren’t exactly suited for the style we run, which is growth at a reasonable price. But, [with stocks] having come back down 20%, on average, we’re looking again.”

One sector she currently favours is housing. “We did go [into 2016] with some housing exposure in the U.S. But, over the last couple of months, the downdraft in U.S. equity has caused [housing] to come down as well. So valuation[s] are again more reasonable.”

Read: Buffett says U.S. economy is “alive and well”

Within her small-cap fund, Law says she has 7% exposure to the U.S. But, she’s also actively managing her exposure to U.S. currency to achieve alpha. “We’ve traded around our hedges depending on where we think the U.S. dollar is going.”

The fund was unhedged in early February, she adds, but “then we did put on a 50% hedge on the U.S. dollar.” When the currency was unhedged, the dollar was valued at $1.32 versus the loonie, but she took more caution when the dollar’s value rose to $1.41.

Read:

Investors running out of safe havens, for more on U.S. dollar

Be defensive against U.S. equities in 2016

Small caps beat large caps in February

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