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Ashley Pittard: Why US is set to enjoy a decade of growth

A US recession is highly likely, but it will be shallow and provide compelling valuations for global equities investors, says Pendal’s ASHLEY PITTARD

THE great re-shoring of American industrial production will help the US avoid a deep recession this year and could underpin strong economic growth for the next decade, says Pendal’s Ashley Pittard. 

The Biden government this month opened applications for some US$53 billion in manufacturing subsidies under the CHIPS and Science Act, which seeks to boost domestic semiconductor and high-tech manufacturing. 

Already, US$138 billion of capital spending has been committed from companies including Intel, Samsung, Texas Instruments, Micron Technology and GlobalFoundries. The first new facilities are expected to be operating as soon as this year. 

“It’s just like Warren Buffett says: never bet against America,” says Pittard, who manages the Pendal Concentrated Global Share Fund

“The US always was and still remains a powerhouse in manufacturing.” 

The tailwind of bringing manufacturing capacity back onshore will drive capital expenditure back to its pre-2000 levels, believes Pittard. 

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Pendal Concentrated Global Share Fund

“It is going back to pre-peak-globalisation — and should compound 5 to 6 per cent a year which would give you a nice buffer. That’s why we don’t think the recession will be that deep in the US.” 

Capital expenditure a critical driver

Capital expenditure is a critical driver of economic growth, says Pittard. 

“You’re not just putting a digger in the ground. You need to hire people to help with permits, you need builders, you have to buy the equipment, you have to have the equipment installed, you need to find a high skilled workforce. It’s pure Reagan trickle-down economics,” says Pittard. 

It’s a big turnaround for the US, which has long seen companies move production offshore to take advantage of cheaper labour in China and south-east Asia. 

The trend to outsourcing means capital expenditure has grown at an annual rate of just 3 per cent since 2000 compared to the 5 per cent plus clip in the prior two decades. 

The decline in capex growth was largely due to falling spending on technology, consumer electronics and apparel. 

The average American company now outsources between 25 and 50 per cent of production, compared to a 10 per cent outsourcing rate in comparable firms in the UK and Europe, Pittard says. 

“They do it because they get a higher return on capital. They’ve got supply chains and just in time inventory and all that stuff. 

“But what they learned from COVID and China’s lockdowns and war is that the sales that you lose by outsourcing that production just isn’t worth it now. 

“America is saying ‘for the sake of national security, for the sake of jobs, let’s bring it all back so that instead of giving jobs to the rest of the world, we’re bringing them back to the US’.” 

Pittard says onshoring is estimated to create an additional 200,000 jobs a year which is a 1.4 per cent boost to the total US manufacturing labour force. 

US ‘highly attractive’

The upshot for investors? The US remains a highly attractive market, says Pittard. 

“The caveat of course is if the Fed hits us over the head with a hammer by raising rates too aggressively, but there’s a tailwind from this higher capital expenditure which will help buffer the economy. 

“The CHIPS and Science Act is an awesome act.

“It was passed in November last year and this week was the first implementation and already you’ve had the $140 billion in investment that will all kick in over the next two years. 

“Peak globalisation went too far.” 

Pittard says investors should ensure they have a good industrial base in their portfolios and be selective on the big technology companies that benefit from the re-shoring. 

About Ashley Pittard and Pendal Concentrated Global Share Fund

Ashley Pittard leads Pendal’s Global Equities investment boutique. He is responsible for setting the strategy, processes and risk management for the boutique and its funds including Pendal Concentrated Global Share (COGS) Fund.

Ashley has more than 24 years of finance experience, including roles in petroleum economics, global energy investment analysis and 20 years as a global equities fund manager.

Pendal COGS Fund is an actively managed, concentrated portfolio of global shares diversified across a broad range of global sharemarkets.

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Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.

Contact a Pendal key account manager here.

This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current as at March 9, 2023. PFSL is the responsible entity and issuer of units in the Pendal Concentrated Global Share Fund (Fund) ARSN: 613 608 085. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund. An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation. The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information. Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance. Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections. For more information, please call Customer Relations on 1300 346 821 8:00am to 6:00pm (Sydney time) or visit our website www.pendalgroup.com

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