Fiscal Stimulus Around the World Supports ‘Smart Industrials’

market analysis

Fiscal stimulus around the world supports ‘smart industrials’

By

Paul Ashworth, Managing Partner


Posted 05 October 20

Astuteness means we're masters of the downside risk. We don't believe everything that's written in the newspaper.

Interview with ausbiz, 5 Octorber 2020

To own industrials is not ‘old world’ investment – rather, ‘smart’ industrials have an important place in equities strategy where fiscal stimulus will be the core policy driver for economic growth and recovery going forward.
In this week’s chat with ausbiz, Paul Ashworth discusses how an equity strategy built around ‘smart industrials’ is poised to benefit from the significant pandemic-induced fiscal stimulus.

Watch the recorded session here.
— A key point summary can be read below.

To own industrials is not ‘old world’ investment  – rather, ‘smart’ industrials have an important place in equities strategy where fiscal stimulus will be the core policy driver for economic growth and recovery going forward.

Strategy position

Having accumulated gargantuan debt, governments around the world now seek growth and some inflation (basically to reduce the stock of debt stock compared to GDP). With monetary policy largely exhausted, this leaves fiscal policy and government spending to do the big lifting. Australia will see this first hand tomorrow night with the Federal Budget and the jettisoning of the Coalition's three core commandants of:

  1. Budget surplus over the cycle,
  2. Reduced government spending,
  3. Reduced government involvement in the economy.

Quality ‘smart’ industrials are well positioned to benefit. 

Key points:

  • Just as monetary policy has done huge lifting to this point, government spending needs to do a whole lot more (if it doesn’t, growth will be very poor, disinflation will result, and consumption will collapse).
  • The top 10% save, the bottom 90% spend – policy needs to support the bottom 90% as it is around their spending that produces jobs, income and hence consumption. Infrastructure and property are central with associated multiplier effects and which filters down.

  • This is supportive of well conducted cyclicals and industrials – importantly, an industrial needs to be viewed in the context of forward-looking productivity and technology. Some examples across the economies we invest in are:

  1. Union Pacific in the US – railroad emissions reduction, train monitoring and efficiency using big data.
  2. Croda International PIc in the UK – providing science leading additives to personal care, life science, food production and industrial chemicals.
  3. Reliance Worldwide in Australia – providing leading plumbing solutions here, in the UK and the US.

  • These are not merely industrial businesses waiting for the economic cycle to lift, but as the cycle does lift through fiscal expansion, we expect these types of companies to perform even better.
  • Perhaps to underscore the point, our UK equity strategy holds 19 businesses, largely all strategy-forward industrial businesses with highly technology. This portfolio has outperformed the FTSE100 in pound sterling terms for the 12 months to 30 September by 24.3%.
  • We have previously cautioned about labelling businesses growth vs value or tech vs the rest. Good firms have leading market positions (#1 or #2 in their chosen market), razor sharp focus, innovation, continuous productivity improvement, clever technology adoption in support of strategy, and great cultures!

Peace of Mind Investing

Cameron Harrison have been advising business owners and their families on asset allocation and intergenerational wealth management for over 50 years. We have demonstrated over a long period our ability to manage investments through both the good times and bad by keeping the client at the centre of our business. 

For more information on our approach to investment strategy or any other inquiries, please contact us on +613 9655 5000.