Navigating the US Equity Market


U.S. is in a sweet spot

In today's low nominal growth environment, the US economy is in a sweet spot. Employment trends, wage growth and consumer consumption are improving, inflation remains muted even as the market continues to power steadily ahead. Despite strong stock market gains, pockets of new investment opportunities are emerging amid new secular growth trends, improving corporate balance sheets and gradual moves to normalise interest rates.

Post US-Election Opportunities Ahead

The US Election results took markets by surprise and while the immediate aftermath of Donald Trump's shock victory was negative and extreme, markets have been rallying steadily since the results became clear. We expect to see the usual cooling of campaign rhetoric give way to more pragmatic and sensible policies in the months to come and believe that active management is important given the current uncertainty, as the effects of the election begin to sort themselves out.

Trump: Sector Impacts
  • US is the world's largest economy, with a nominal GDP of US $17.9 trillion in 20151 (22% share of global GDP)
  • Projected GDP growth rate above its developed markets counterparts2
  • World's largest and most liquid stock market - 37.5%3 World's market capitalisation
  • Home to world's strongest global brands and fast-growing and innovative new industries4

1 Bloomberg and World Bank, as at November 2016, based on 2015 GDP in current US dollars.
2 Source: IMF, Bloomberg, as at 28 November 2016.
3 Bloomberg, as at 11 January 2017
4 Source: Forbes' World's Most Valuable Brands 2016 (http://www.forbes. com/powerful-brands/list/#tab:rank.) The companies are (1) Apple, (2) Google, (3) Microsoft, (4) Coca-Cola, (5) Facebook, (6) Toyota, (7) IBM, (8) Disney, (9) McDonald's and (10) GE.

FED Guidance to the market

We continue to think that 2017 would continue to be a positive year for US equities, with room for further upside. Here's why:

Why Legg Mason for US equities?

  1. Our multi-boutique structure allows access to some of the best fund management talent available to focus on what they do best: Uncovering opportunities aiming to deliver long-term results to investor across different market cycles.
    Legg Mason's portfolio managers are active fund managers seeking to deliver value by achieving market-beating returns instead of simply 'hugging the benchmark'. Dispersion of returns vary widely within individual sectors, hence the ability to identify high-quality companies with real long-term growth potential can make a big difference when it comes to returns.
  2. US Expertise with global presence in over 30 offices across 6 continents
    BENCHMARK Fund of the Year Awards 2015 – House Award: US Small/ Mid-Cap Equity (Outstanding Achiever)5
    BENCHMARK Fund of the Year Awards 2014 – House Award: US Equity (Outstanding Achiever)6
    BENCHMARK Fund of the Year Awards 2013 – House Award: US Equity (Best-in-Class)7

5 Source: BENCHMARK. Awarded company: Legg Mason Global Asset Management. Based on performance up to 30 September 2015.
6 Source: BENCHMARK. Awarded company: Legg Mason Global Asset Management. Based on performance up to 30 September 2014.
7 Source: BENCHMARK. Awarded company: Legg Mason Global Asset Management. Based on performance up to 30 September 2013.

Compass — Large Cap

Fundamental strength

US large cap stocks are usually established market leaders with dominant industry positions. »

Compass — Innovative Growth

Innovative growth

Owning a diverse collection of innovative growth-producing stocks is a prudent way to deliver performance regardless of the strength of the overall economy. »

Compass — US Small and Micro Cap

Domestic opportunities

US consumption contributes approximately 70% of the US GDP, hence strong US consumption presents great opportunities for investing domestically. »

Compass — Tactical Income

Tactical income

Equity income securities provide competitive distributions and capital appreciation potential, offering an alternative for investors seeking portfolio income in this low yield environment. »

About the investment managers

ClearBridge Investments
  • ClearBridge Investments is Legg Mason's largest equity manager with a legacy dating back more than 50 years, managing US$112.4 billion in assets as a 31 December 2016.
  • It is focused on building equity portfolios for clients who seek income solutions, high active share or low volatility.
  • ClearBridge offers distinctive manager insights and proprietary fundamental research. The firm has 34 portfolio managers with an average of 25 years of investment industry experience.
Royce & Associates
  • Royce is a small-cap equity specialist with over four decades of small-cap investment experience, managing US$17.6 billion in assets as at 31 December 2016.
  • Uses an active, bottom-up, risk-conscious and fundamental approach,
  • Royce has a large and highly experienced investment team with multiple decades of small-cap expertise, bringing a formidable amount of knowledge and experience to an asset class that is not always well understood or effectively followed.