03 Apr 2012 | World

Investing in the US 

There are plenty of exciting opportunities in the
United States – if you know where to look.

In the following article, Mick Brewis, the Head of American Equities at Baillie Gifford, sets out his optimistic views of the investment opportunities available in the United States of America.  The views expressed in this article are not necessarily those of Baillie Gifford as a whole and should not be considered as advice or a recommendation to buy, sell or hold an individual investment.  They reflect personal opinion and should not be taken as fact nor should any reliance be placed on them when making investment decisions.

As with any stock market investment, there are no guarantees.  Ongoing market conditions and currency exchange rates will affect the value of an investment and any income from it. Investors should be prepared to accept the risk that they may not get back the full amount invested.

Investments with exposure to a single market and currency are generally considered higher risk than those which invest across a number of different countries.

It’s a great time for people to consider putting money into the United States because the country’s economy is improving and there is certainly no shortage of interesting stocks. That’s the key message from Mick Brewis, head of the North American Equities team at Baillie Gifford. Of course, your capital is always at risk when making an investment in the stock market.

“Investing in America is a stock picker’s dream because there’s such a great choice of world class, innovative companies,” he says. “We are finding lots of attractive opportunities and are upbeat about the outlook for both the economy and the stock market.” Not only are many US-based global giants performing well on both the domestic and global stages, it also happens to be an interesting time in terms of technological change, which is likely to pave the way for some exciting growth opportunities over the next few years. It is also worth noting here that there will of course always be some companies that fail.

“The US has done a pretty good job of putting its house in order since the financial crash and recession", he says. “Many of its companies are now efficient, profitable and generating cash. The banking system is also in good shape and policy measures have been supportive.”

“We are long-term in our thinking and have three to five year investment horizons when considering stocks” he explains. “Our holdings we believe have strong competitive positions and excellent management.”

In the North American team a lot of time is spent analysing the competitive environment in which a company operates, as well as the attitudes of the management teams at the helm. It is particularly important to find evidence that the firms in question are being run for the longer-term benefit of their shareholders.

“We look at all aspects of a company’s brand, proprietary technology and service levels,” says Mr Brewis. “Macro-economic considerations and sector trends are also taken into account.”

Another favoured attribute is a strong internal culture. “This might be a softer factor but it can make a real difference to a company’s performance if a management team has got its workforce well motivated and pulling in the same direction,” he explains. “Successful management teams are also ones which are constantly innovating.”

Over the last few years it might have lagged fast-growing areas of the world such as the emerging markets, but the growth outlook is looking good for the US in relative terms – especially when you consider Europe has myriad problems and China is at a challenging stage of its economic cycle.

“I’ve always felt there’s a great choice of companies to invest in from across the sectors,” says Mr Brewis. “As a stock picker you can sift through these companies until you find a real hidden gem.” 

The ability to find potentially exciting opportunities is due to the resources available at Baillie Gifford, according to Mr Brewis, with the six-strong North American Equities team constantly researching and debating stock ideas.

It’s also easy to get a global perspective on questions because the rest of Baillie Gifford’s investment teams are all based in Edinburgh as well. “This means we can talk to our colleagues about what is happening in different areas of the world, which helps our decision making process,” he adds.

Being independent and focusing on nothing but investment, he suggests, has been one of the keys to the company’s success. “All of us are encouraged to think long term and that’s important because one of the ways to outperform in the US is by taking advantage of Wall Street’s short-termism,” he says. “Companies with sustainable long-term growth are often under-valued so we want to do the necessary research and take advantage of any opportunities.”

 “We like to have exposure to a broad spread of sectors and will be flexible in moving between them, depending on where we believe the potential growth opportunities can be found,” he adds.

Mr Brewis and his team are totally focussed on finding the right combination of exciting large and mid-cap growth companies. “It’s definitely an interesting time for potential investors to consider the US.”

Author: Mick Brewis
Mick graduated BA in Economics from Cambridge University in 1985, and joined Baillie Gifford in the same year. He became a Partner in 1993 and Head of the North American Equity Team in 1995.