18th June 2013
Charles Stanley Direct has tipped the Legg Mason US Smaller Companies Fund to play the US recovery including oil shale and the return of’ blue collar’ manufacturing drawn by cheap energy.
In a note, Rob Morgan, pension and investments analyst says that “falling unemployment and increasing GDP shows it is recovering and even the housing market, the epicentre of the financial crisis, has turned the corner following a prolonged slump.
“The emergence of the US shale gas industry is a prime reason. This promises to change the US from being a net importer of energy to a net exporter by 2020, if estimates are to be believed, and already cheap energy has meant companies returning or relocating manufacturing operations to the US. A renaissance in blue collar America is already starting to have an impact in the market.”
Morgan says that according to Lauren Romeo, manager of the fund, there has been something of a ‘rotation’ into more economically sensitive areas after a period of out-performance by defensive companies with safer earnings prospects (as well as financials benefiting from sustained quantitative easing).
This fund is biased towards these areas with technology, industrials and energy well represented. Accordingly, after a difficult few months, it had a far better May, increasing over 9% says Morgan.
The fund’s holdings include GrafTech which makes graphite electrodes used in steel production, and Jacobs Engineering which is seeing a growing order book, while rising demand for oil and gas has benefited energy firm Helmerich & Payne.
Morgan adds: “The ‘wealth effect’ of a buoyant stock market and rising house prices has also breathed new life into consumer related stocks. Harman International, a provider of vehicle ‘infotainment’ and audio systems posted good earnings results. Meanwhile, The Buckle, a fashion retailer in less competitive rural markets has also performed well for the fund in recent weeks”.
“For investors who believe in a durable US recovery I believe this fund is worth considering,” he adds.