The weakness of the US Dollar (down 7% against Sterling) ensured that the US was the least rewarding of the major equity markets in 2004. The Dow Jones Industrial Index managed to advance 3% and the NASDAQ a more respectable 9%. But when the currency had taken its toll, the broadly based FT USA Index (adjusted to Sterling) was up by less than 2%.

This was a pretty spineless performance given that:-

a)      Corporate earnings growth has remained robust;

b)      The Bond market has been helpful (the long Treasury yield fell from 5.1% to 4.8%);

c)      Market fears of an indecisive Presidential Election result proved unfounded and,

d)      Geopolitical concerns over terrorism, the Iraq war and the oil price were not uniquely US
    ones.

BAM has been consistently underweight US equities in 2004 with further reductions in the Spring and Summer. However, as the year drew to a close, we have begun to rebuild our target weighting. This is the first increase (from 7% to 8%) since 2003.

We feel that quality US companies, capable of extending their run of profit growth, are now attractively priced in both absolute and relative terms. The current exchange rate, if not the low point for the Dollar, at least provides an historically attractive point of entry for overseas investors. And any further Dollar weakness would help underpin profits.