After joining the Rathbones multi-asset team last October, I was very excited to be dispatched to Florida for my first US conference. So many great companies are based in the US – and they make up roughly 60% of the equities in our multi-asset portfolios – so it’s a real treat to be able to see them on home soil.
I loved my week in Orlando. It wasn’t just being in touching distance to Disney World, or feeling sunshine after a very grey February. It was a great introduction to why the US is a great place to invest – something needed amidst all the Trump volatility and rotation into Europe of recent weeks.
Perhaps what best captures this is one CEO’s opening remark: “We have the advantage of not being international, we are mostly US focused.” As a Brit this hits home. In my nearly eight years on the sell-side, I never heard a company highlighting its UK exposure as an advantage.
Pre-Rathbones I focused on European consumer staples – a sector that includes some of the best-paid European CEOs. However, throughout the conference I was stunned by how impressed I was by the management teams... even those whose market caps were a fraction of the size of the ones I used to look at. In human capital terms, the US reigns supreme.
The American dream
It also continues to be a great place to do business. There were plenty of signs that entrepreneurialism continues to thrive. Of course, there’re big brands, but the Orlando city centre was full of independent restaurants, in contrast to the chain-heavy high streets of the UK. At the conference, many businesses highlighted the prevalence of small and medium-sized companies in their industries – insurance broker Brown & Brown (which we own) and rock crusher Martin Marietta Materials (which we don’t) to name a few. These smaller rivals keep the larger businesses on their toes, encouraging industry innovation as well as providing consolidation opportunities. Many of the businesses I met also noted that they were selling to many different customers, rather than a few very large companies. This ‘fragmented customer base’ makes it easier for companies to raise prices (or, at least, not have prices beaten down) by large buyers who know they can seriously hurt a supplier by walking away. Used auto parts distributor LKQ and construction software and GPS tools creator Trimble – we own both – were examples of this.
In Orlando, schools and churches offer multi-lingual services – a reminder that the Hispanic population is now 20% of the US and that immigration is one of the reasons why the US, unlike Western Europe and developed Asia, is still facing more births than deaths per year and thus smaller headwinds from an aging population. Economic theory dictates that immigration is positive for economic growth and that certainly seems to have been the reality in the US, with studies showing immigration has been important for preventing labour shortages in healthcare and construction and that states with higher concentrations of foreign-born workers have experienced significantly faster productivity growth. Companies we spoke to aren’t yet seeing real-time implications of Trump’s immigration policies, but a serious prolonged crackdown would certainly pose a challenge for future US economic growth.
Technological advances weren’t quite all around, however. The most exciting gadget I saw was an automated lawn mower and my walk around Disney World rather disappointingly revealed the exact same rides I’d been on 20 years earlier. But hearing ride-hailing app Uber talk about testing robo-taxis in multiple states and tractor maker Deere rolling out precision crop-spraying technology were reminders of where the US is well ahead of Europe. (We don’t own Uber, but Deere does feature in our portfolios.)
In more positive Trump news, there was excitement among US rail companies about pro-business hires in key regulatory bodies where they already had cost-saving technology ready to deploy, but had historically been held back by regulation.
Although periods of volatility like the last few weeks can be a stressful time to work in the stock market, it’s important to remember that they provide an exciting opportunity: some fantastic, innovative US companies selling to attractive markets and with secular growth trends just went on sale.
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