Charles Stanley tips Legg Mason US Smaller Companies for US recovery play and ‘blue collar industries’ revival

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.

34 thoughts on “Charles Stanley tips Legg Mason US Smaller Companies for US recovery play and ‘blue collar industries’ revival”

  1. Anonymous says:

    Shaun,

    I suggest that Work Providers are gaming the Job Seekers system so that people are encouraged to forego JS allowance and go self employed to retain tax credits ,housing allowance etc. This rewards the WPs as unemployment reduced and the new self employed avoid harassment/sanction of loss of JSA related benefits for failure to get a job.
    If this is the case expect future increase in unemployment as self employed unable to sustain income and return to unemployment.

    Time I think to name and shame companies that are poor paying employers and those using outsourcing for the same ends. Customers could then vote with their wallets to rectify if they so wish. Let us start with the worst 100 and go from there if sucessful.
    Also time to raise the personal allowance to prevent penal tax rates and match living wages after tax?

    1. DaveS says:

      Yes there are a number of conributors

      1. As you say JSA claimants who get harassed/persuaded to go into fake self-employments and claim working tax credits instead.

      2. Low paid workers forced to become fake self-employed sub-contractors so their employers don’t have to pay benefits and NI

      3. Pensioners trying to supplement their income as ebay traders etc.

      4. I suppose some would be entrepreneurs “driven by high-growth ambitions, innovation and disruptive business models”

      Strangely I am in the latter category, being a founder in a “high-tech” start-up but I don’t show in stats as self-employed – rather as employee of limited company.

    2. dutch says:

      ‘I suggest that Work Providers are gaming the Job Seekers system so that
      people are encouraged to forego JS allowance and go self employed to
      retain tax credits ,housing allowance etc.’

      Bingo.

      It’s mainly about avoiding the petty harassment you get on JSA.

    3. Anonymous says:

      Hi Chris

      I just wanted to add that the rises in the Personal Allowance means that National Insurance now applies at a lower income level. So it would be best to raise it instead. As to poor paying companies it would indeed be interesting to find out who they are and also why they do it…..?

      1. Anonymous says:

        Shaun,
        Ever since G Brown’s focus groups did not consider NI a tax it has been fair game for increases – should either be rolled into income tax or the funds ring fenced for pensions/NHS use at least to get back to its original purpose.
        Other penal tax rates for benefit payments etc still extant!

        1. Noo 2 Economics says:

          “…or the funds ring fenced for pensions/NHS use”

          They couldn’t do that! You would have fully funded welfare system and NHS overnight!! then how could they justify further cuts? Unthinkable!

  2. Anonymous says:

    One possibility is that average wages are being depressed by a change in the mix of employees from relatively well paid indigenous people towards those who have come from abroad. For the latter category, professionals excepted, any UK wage rate is probably 10 times their previous rate, if indeed they had work at all. It seems likely that employers are making full use of the plentiful supply of low-end labour. Other scenarios include people holding on to jobs as they can’t get another that’s as secure, the end of automatic pay increments each year in state employment and as others have said below, the gaming scenario around ESA, tax credits and partial declaration of self employment. The UK is a complex place and getting more complex. What at first sight is a rather depressing picture may simply be a shift in the statistical base. After all, if real wages are declining, how is it that there is something of a car sales/leasing boom?

    1. Forbin says:

      they borrow money off their house price increase I think is the answer to people being able to spend more

      what could go wrong ?

      Forbin

    2. dutch says:

      Food and fuel are much higher in price than they were 6 years ago,even if inflation looks subdued, and they most certainly are for the lower end of the socio demographic spectrum.The inflation rates for these sectors of the population have been higher than reported for years,as is often discussed on here.
      Clearly,pay is dropping.
      At the same time,there are more people trying to access the welfare system.
      We’re running a 7% fiscal deficit for 2% GDP growth.
      If that’s not derpessing,I don’t know what is?

  3. Pavlaki says:

    Yes the pound was hammered today even against the Euro. There was some seriously poor news from the Eurozone and yet traders still appear more bullish on the Euro given half a chance. It does puzzle me why! The fundamentals surrounding Sterling are much better than the Euro and there is definitely a rate rise in the pipeline. Conversely it is almost a given that Draghi is facing deflation and will have to do much more than he has so far. I am surprised that the Euro is not much lower against most majors.

    I am becoming more convinced that the B of E is well behind the curve with its rate rise and also suspect that there is political interference in this decision to postpone. Politicians do not want headlines about people beyong unable to pay off their debts just before an election. Unfortunately the bank has delayed the rate rise for so long that folk have taken on far too much debt and any rise is going to hurt.

    1. Anonymous says:

      Hi Pavlaki

      i felt that we needed to nudge Base Rates higher 4 years or so ago! But if we return to the present I think that as the UK economy picked-up it gave the Pound £ a real push higher. But the more recent news of growth but not quite so good growth has taken the shine off it. On the day I was surprised that markets responded so aggressively to the Bank of England cutting it wages forecasts. After all we have been discussing problems there on here for some time. So maybe we will see a bounce but perhaps we have now moved into a phase where the Pound £ is a sell on rallies.

      As to the Euro I guess traders will be setting their alarms very early for the GDP numbers from France and Germany tomorrow as both will be thin at best and either could slip into negative territory.

  4. forbin says:

    Sorry Shaun but isn’t 1.65 the long term average rate ?

    so we’re going back to normality ?

    Forbin

    1. Anonymous says:

      Hi Forbin

      Pretty much. @Richx183 on twiiter has just replied to say that a close just below US $1.67 is pretty much on our 40 year average. it also feels as if the run up from below US $1.50 may be ending and that rallies should now be sold.

  5. Anonymous says:

    Great column, Shaun. With the February IR, the BoE went from forward guidance to fuzzy guidance, or forward guidance, phase two, as Governor Carney liked to call it. Now it seems it has moved onto fuzzier guidance, although Carney isn’t calling it forward guidanc, phase three. I noticed when a reporter complained that monetary policy seemed to be muddled, with this new emphasis on wage developments, Carney, showing his customary politeness, said that it was the reporter who was muddled, because the BoE hadn’t set any threshold rate for wages. It was a pretty feeble defence, given that the BoE never set any threshold rate for the new slack variables that were to replace the headline unemployment rate either. The BoE seems to keep moving the goalposts while denying that it has done so.
    Thank you very much for the link about UniCredit in Serbia. My father-in-law never had a mortgage on his home, which was built over time from a one-storey to a two-storey house using a series of small loans. That was normal under Tito. However, it looked like UniCredit is offering its customers mortgage loans very similar in their terms to what could be found in the UK or Canada. Andrew Baldwin

    1. Anonymous says:

      Hi Andrew

      I think that the tone of today’s press conference showed that the honeymoon period is over for Mark Carney. Indeed a rougher phase may well begin and he may be grateful to have shortened his term to 5 years.

      As to Serbia I have to say that the monetary policy setting looks very odd to me! The NBS had its inflation report too today which told us this.

      “year-on-year inflation moved below the lower bound of the target tolerance band in the second quarter. In fact, it plunged to 1.3% in June, its lowest level in the past 50 years…………The dinar was under appreciation pressures for most of the second quarter.”

      So why do they have an official interest-rate of 8.5%? It looks way too high…

      1. Anonymous says:

        Shaun, the breadth of your knowledge never ceases to amaze me. I didn’t know that the NBS’s inflation report was today, or anything about what the NBS had been doing recently. From googling, it seems that the rate was reduced from 9.0% to 8.5% in June (no prissy little 12.5 basis points adjustments for Serbs!) and the analyst said that the rate would keep going down, so you really wonder why it is still so high. If you look at this link,

        http://inserbia.info/today/2014/08/tabakovic-nbs-will-strive-to-keep-dinar-relatively-stable/

        Governor Tabaković mentions preserving the value of the dinar, so maybe she is afraid that a new rate decrease so soon after the last one might cause the dinar to fall unacceptably. I am really just guessing. Thank you again for your information on the NBS. (That is my son Miki and me standing in front of the NBS headquarters in Belgrade, by the way, in the photo that accompanies my comments.)

  6. Critic Al Rick says:

    Let’s face it, UKplc as a viable enterprise has had it.

    It has maxed-out its credit card, runs at a loss (Balance of Payments Deficit) stripped most of its assets, all but totally depleted its natural resources, is grossly unsustainably over-populated, and is riddled with free-loaders and other Parasites (rich, poor and intermediate).

    The economy, being based upon fantasy, is totally false and has been so for at least the past 30 years during which time the asset stripping has taken place whilst some of its employees ( the Truly Private Sector including its retirees), have been and are being systematically pillaged to keep the show on the road.

    I don’t expect interest rates to Savers to increase much or the average wage in real terms to do anything but decline before the Depression is allowed /forces itself to play out proper.

    1. Anonymous says:

      Hi Critic Al

      I think that Mark Carney is a bit like the boy who cried wolf in that he talks of interest-rate rises but does not actually do them. As soon as this mini-boom ends (post-election?) what does he do then?

      1. Critic Al Rick says:

        Hi Shaun.

        Yes, it also appears to me that this so-called upturn is stage-managed with the election in mind.

        I think MC is warning of impending interest-rate rises; they will arrive more by being forced upon the BoE than by invitation by the BoE.

        IMF intervention…?

        1. Anonymous says:

          I agree, the only way rates will rise is after some kind of IMF event.

    2. Anonymous says:

      The late 70s & early 80s with IMF intervention was hardly a golden age for the UK.

      1. Critic Al Rick says:

        How much longer before the IMF intervenes again…?

  7. AnneD says:

    Just when you thought the bankers learned their lesson, sorry, They’re Back! Here we go again with bankers creating the next generation of credit-default-swaps. Bankers should just be bankers. Creating products destined to blow up when they are the market-makers is just nuts. Now JPMorgan Chase & Co. is offering a swap contract tied to a speculative-grade loan index. This is designed to make it easier for investors to wager on the debt. The problem is, the lack of an arm’s-length transaction and the people who create the product keep track of positions and then find it just impossible not to trade against their clients. This is just a new version of the same story over and over again.
    Goldman Sachs Group Inc. is also in the game planning as much as 10 billion euros ($13.4 billion) of structured investments that bundle debt into “top-rated” securities. Isn’t this the same thing as taking low-grade mortgages and bundling them together so they somehow are not worth more in a bundle?
    ProShares last week started offering exchange-traded funds backed by credit-default swaps on company debt. At least exchange traded is a little more transparent. Dealing with a banker who creates the product and provides the market for it has been done so many times and it always ends in a scandal.

    Well – They’re Back. And this time, right on cue for big-bang. Armstrong Economics

    1. Anonymous says:

      A lesson for bankers ? sorry I missed it.

      Just how many bankers went to jail for LIEBOR ? , the original mortgage backed bonds fraud ? the ratings agencies complete failure to assess risk ? Banks that busted ?

      The only thing the bankers learned was to go cap in hand and “tell politicians the economy will break like the 1930s if you don’t give us trillions”, should we call it a protection racket ?

  8. DaveS says:

    Well I haven’t noticed any shanty towns (yet) so guess the 5 million are mostly living in rented flats/houses.

    The problem is lack of affordable accommodation but then that depends where you live. In my home town of Liverpool there is plenty – in London there is none. In London we are returning to pre-War tenement living with migrant workers living in cramped houses, several to a room and sharing 1 or 2 toilets – albeit inside ones.

    But they are building lots more housing in London – its just being snapped up by wealthy landlords as fast as its built.

    If we want affordable housing then we need house prices to drop considerably – I suppose this could be achieved with a massive house building program although where you find the space in London I don’t know. But house prices might have to drop from 5 times to 3 times income – lets say with a bit of overshoot a 50% drop i.e. a crash like they had in Ireland, Spain, Portugal etc.

    If that scenario I don’t believe our banks would survive, consumer confidence/spending would be crushed – the economy would collapse. So houses might be cheaper but only the lucky few that still had a job could get one and only if they can find a bank still standing to hand them a mortgage.

    So its damned if you – damned if you don’t

    However house building is very popular with economists as an offering to the great god of GDP. As long as you build you can inflate GDP – even boosts manufacturing as our jcb and brick factories run overtime. Exactly what we are seeing now,

    In the short term I suppose we are doing quite well In London selling concrete boxes to foreigners and perhaps we should take their money whilst we can, But in the long term I can’t see it solves anything – it just perpetuates the misdirection of capital into buildings that one day will be essentially worthless.

  9. Forbin says:

    Hi DaveS,

    brings to mind Easter Islanders building more stone heads as a solution to their problem……

    We can all see where that ended up.

    I agree about the Banks, until their strangle hold on the economy is broken then its more of the same…..

    The solutions are quite simple but to difficult to impliment

    1, Reduce the population ( the nice ways thank you very much)

    2, build many flats and just take it we’re going to be like Hong Kong ( at least in London ) .

    As the housing crisis has been going on for over 30 years I don’t expect much to be done ,if anything at all.

    Forbin

  10. Anonymous says:

    Look at the back gardens in some London suburbs. The shanty towns are there, and growing. That nice garden shed that once held the lawn mower and some mouldy deck chairs is now home to a rent-paying couple from abroad and their three kids. And Grandma is expected soon. The planning system has broken down completely in London (why?) and I expect garden shed infill to be the norm. This is how the country is providing accommodation for its immigrant population, at least in London. And a nice backhander for the planners.

  11. DaveS says:

    1. Reduce population – god of GDP will be very angry (no one cares about GDP per capita)

    2. As I said housing crash – god of GDP will strike us down

    You will have 1 god and 1 god only – GDP

  12. Patrick, London says:

    1. Ban foreign investment in UK residential property.
    2. Increase capital gains taxation on selling of all but initial home to 75% percent (See point 4) . Taxation directed towards property related solutions: 60% brownfield development, 30% empty dwelling repair, 10% Greenbelt usage.
    3. Mansion tax applied to every additional home/house, bar original dwelling with a 2 year grace period.
    4. Allow landlords/developers to offset redevelopment/improvement costs against Mansion Tax and property related Capital Gains, as opposed to general market HPI.

    If you rode the market, and did SFA to improve conditions/quality, then you get taxed heavily. If you brought something back into habitable condition, or made major improvements, you keep more of the profit from your investment. Reward hard work/investment/invention, diminish rewards for riding the gravy train.

    BTL, whether indigenous or foreign IS the parasite. It needs to be made very unattractive, UNLESS the landlords in questions are contributing something positive. (and not just providing a ‘home.’)

  13. therrawbuzzin says:

    HS2 is the alternative to becoming Hong Kong.
    Can’t have the 1%’s investments compromised.

  14. Forbin says:

    All Hail the New Stone God – GDP !

    repeat after me

    we are not worthy ! we are not worthy ! , we are not worthy!

    😉

    Forbin

  15. forbin says:

    hmm, reminds me of Sloughsky when the Poles came over…..

  16. Anonymous says:

    Hi Barncactus

    There were stories of London councils using helicopters with infra-red scanners to detect how many people we in certain places (gardens etc..). I think there were fears as to what conditions such people might be living in.

  17. Anonymous says:

    Slough was fill of sub-standard accomodation long before the Poles arrived

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