Speaking in London last week, W. Scott Priebe, managing principal and manager of GCM Midcap US Equity Growth Fund said there are a number of factors that point to a rather bullish future for the US industrial base.
“Looking in terms of US manufacturing unit labour costs, wages in the country have been stagnant for 30 years. This is significant when compared to the significant wage inflation that has been seen in a number of emerging markets,” he said.
According to Priebe, US firms are beginning to bring manufacturing jobs back to the country, something that hasn’t happened in decades.
And, he pointed out: “When such changes occur and decades-long trends reverse, they tend not to be short-lived.”
Speaking at the same event, Henry Ramallo, managing director, and senior portfolio manager at the Straus Group and manager of the Neuberger Berman US Equity Value Fund, agreed that there has been a shift in the industrial base in the country and argued, as did Priebe that there is still room to grow for US equities.
According to Ramallo, the market is not overheated. In part, this is because corporates have deleveraged enormously in recent years and have used strong cashflows to pay down debt and buy back shares, leaving them in a good position to take advantage of higher growth.
But, it is not just large and mid cap stocks that stand to benefit from the re-emergence of the industrial base.
John McCraw, portfolio manager: US small caps at Allianz Global Investors, believes there are two major industrial themes underway in the US at the moment, the implications of which investors have yet to fully understand.
The first of these he says is the energy boom, the second is the re-emergence in particular of the auto sector.
“The shale gas industry has had a major impact on the US,” he said.
“First, it has lowered input prices across the board, but the other important point to make, especially from a small-cap point of view is that many of these big shale plays are not in traditional oil and gas regions of the country. That means that there is no existing infrastructure. There are companies effectively building complete towns which has a knock-on effect, especially for the construction sector,” he added.
The auto industry has had its fair share of struggles in recent years, but McCraw says the US is likely to see a lot of new cars coming onto the market in the future because: “People put off buying cars for years as a result of the financial crisis. The average age of US cars currently is roughly 11 years, the average historically has been about 7 years.”
He added: “There has been a pick-up in manufacturing side in the US, importantly, for every job in production, you need two or three on the services side. There are a number of smaller companies related to the auto industry that are benefiting from this,” he added.
