Contrarian view on US equities can reap rewards – Legg Mason

Taking a contrarian view on United States equities can reap rewards according to Evan Bauman, co-lead manager of the Legg Mason ClearBridge US Aggressive Growth Fund.

Contrarian view on US equities can reap rewards – Legg Mason

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Speaking to head of fund research at Brewin Dolphin Ben Gutteridge for a podcast, Bauman pointed to the biotech, energy and tech sectors as having the greatest long-term return potential. “If you take a contrarian view to growth there’s still a lot of money to be made,” he commented.

The healthcare area is one of consolidation at the moment, as several big biotech companies have been acquired by European pharma companies. It is an area favoured by Bauman on a long term basis, while he acknowledges controversy in the sector. But, he says: “If you want companies in this space to be competitive, you have to allow [those companies] to charge high prices.”

Legg Mason ClearBridge has owned US energy companies since the 90’s. “It’s been a very volatile market in terms of underlying commodity prices”, said Bauman and added that the survivors will be big winners in the future. He said: “As you reach a new normal – a new supply/demand balance in the future – we believe that the surviving companies will actually be very attractive. They’re at very attractive valuation prices right now.”

Right now it’s a matter of preserving balance sheets, in Bauman’s view. He said that long term -if commodity prices stay low- it will make a quarter to a third of the industry in the US insolvent. When companies struggle in the current environment they will emerge with a healthier supply and demand balance, according to the co-lead manager.

The biggest mistake investors make is trying to predict short term oil prices, said Bauman. “As long term investors, if you have a time span of 12-18 months, it would be surprising to me if commodity prices across the board weren’t a lot higher in a year or in a year and a half,” he explained.

Regarding tech, he said that the two major trends are data growth which is at 30-40% and connectivity.

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