Each week, a professional investor tells MoneyWeek where he'd put his money now. This week:Simon Moon, fund manager at Unicorn Asset Management.
At Unicorn, we believe America is in the early stages of sustained structural growth. Economic data look increasingly positive. Initial jobless claims are at their lowest level since 2007, consumer spending is up and so are corporate profits, freeing firms to increase spending. Central to this recovery is the US energy revolution.
Not only do fracking and tar sands exploitation create jobs and raise tax revenue, they also dramatically reduce input costs for businesses with US operations. American natural gas prices have halved since 2007, while they've doubled in western Europe. This means it's now viable to bring manufacturing processes back from emerging markets.
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Fortunately for investors, this long-term trend is still in its infancy and has decades left to run. It's positive for employment, the economy as a whole, and the US dollar. America is now the world's second-largest producer of petroleum and is approaching a state of energy independence.
True, it's not all been plain-sailing, with justifiable concerns surrounding the effects of tapering and the impact it will have on equity markets. But this has been well flagged, although it's fair to say that the political brinkmanship that has surrounded the recent government shutdown and debt ceiling negotiations has also damaged sentiment.
However, the good news is that investors don't have to buy oil and gas companies to benefit from the US recovery. They can also focus on US growth plays that are beneficiaries of this virtuous cycle, such as construction, capital-goods expenditure and increased business activity.
There are a wealth of well-managed, highly specialised small UK-based companies that enjoy a high level of exposure to the US economy and which we seek out at Unicorn.
Somero Enterprises (LSE: SOM) manufactures laser-guided machinery, which is used in horizontal concrete placement. The British firm is well exposed to a recovery in US construction and has emerged from the downturn in a lean state, having increased its geographic reach.
It serves the vast majority of the global market and provides the highest level of after-sales care. This gives it has a deep understanding of the age and condition of the fleet, and it is well-placed to anticipate future demand. Around 47% of its revenues are derived from the North American market.
My second choice is Porvair (LSE: PRV). It is a specialist filtration business and its products are used in the filtration of molten metals. A major sales driver for the company is American automotive manufacturing activity.
Porvair, which makes around half its revenues in the US, also manufactures fuel inerting filters and sales of these are benefiting from increased regulation in the aerospace sector. Net debt at the firm is down and recent trading figures were upbeat, with revenues up 13% in the nine months to August before currency fluctuations.
Last but not least is Tyman (LSE: TYMN). The company, formerly known as Lupus Capital and which recently moved from the Aim market to a full listing, manufactures and supplies building products, specifically for use in doors and windows.
Tyman, which currently makes around 65% of its sales in America, has positioned itself to benefit further from activity in the US housing market. Recently it used the proceeds from its disposal of various non-core operations to help fund the acquisition of one of its major North American competitors, Truth Hardware.
Simon Moon is a fund manager at Unicorn Asset Management.
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