By Fidelity, 03 January 2014
Following on from our first article about the advantages of investing in the world’s largest stock market, we’ve come up with seven more reasons for you to put the US back on your investment radar.
1. The US is on track to become energy independent
The discovery and exploitation of shale energy is helping the US economy move away from a reliance on energy imports and towards self-sufficiency. In just four years (2007 to 2011), for example, the country went from being the world’s largest importer of gas to being entirely independent for its gas needs. Eventually, it may even become a net exporter of oil and gas. This has benefits throughout the economy, as lower prices for fuel and power can help everyone from freight and utilities to heavy industry and chemical companies. Consumers should also benefit, as lower heating costs could mean they have more disposable income.
2. Automation is helping US businesses become much more efficient
Machines can work 24 hours a day, without the need for training (or HR departments), and they can produce complicated products to a consistent standard. At the moment, automation is mainly used to make electronics, motor vehicles and automotive parts, but there are expectations that many more industries will be using them in the years ahead. To give one example, Amazon and Staples have already started using warehouse robots in place of forklift trucks.
3. Advanced manufacturing is giving US businesses a competitive edge
Developments in manufacturing are also allowing companies to be more efficient – and many of these developments have their home in the US. For example, the country has led the way in composite materials since the space race (including the development of Teflon and Kevlar). It is now at the heart of work on graphene, which could have applications in fields as diverse as heat dissipation in mobile phones and the desalination of seawater. Similarly, additive manufacturing (better known as 3D printing) is already offering a simpler and quicker way of creating complex components ranging from aircraft parts to hearing aids.
4. Companies are bringing jobs back to the USLooking back a few years, there was a rush to outsource jobs and manufacturing to the emerging markets. This situation now appears to be changing. Wages are rising in many emerging markets, so their key benefit doesn’t outweigh the drawbacks as much as it used to – in particular, the risk of intellectual property theft and the difficulty of managing long supply chains. At the same time, the US is benefiting from cheaper energy and manufacturing advances. As a result, many companies are moving production back home. For example, Ford is producing cars in Ohio and Michigan, Google is building mobile phones in San Jose and General Electric is making washing machines in Kentucky.
5. The US leads the way in research
Estimates suggest the US will have accounted for almost a third of the total amount spent on research and development around the world in 2013. The country also has the largest research footprint in technology, the most Nobel prize winners and, by far, the most journal articles.
6. US companies dominate the web
It’s well known that US businesses are at the heart of many key web services, but it is easy to underestimate the scale of their dominance. For example, Google has 85% of the world’s search engine market1, while the top five social media businesses are all based in the US – Facebook, Twitter, LinkedIn, Google+ and Pinterest.2 It’s also worth remembering that Microsoft has 91% of the global operating system market, while Apple has a further 8%.3
7. The US is at the forefront of medical research
The US has the world’s largest healthcare sector and its research leads the way in fields as diverse as immunotherapy, biomarker research, antimicrobial research, gene therapy and personalised medicine. With ageing populations in the developed world, and increasingly wealthy ones in the emerging markets, it is likely that there will be more and more demand for medical treatments in the coming years.
US equities are not the cheapest in the world but the country has some clear-cut advantages over the rest of the world. This means that many investors will wish to maintain a significant exposure to the world’s biggest stock market.
Please note reference to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only.
1 Source: Netmarketshare, Q4, 2013)
2 Source: eBizMBA, December 2013
3 Source: Netmarketshare, November 2013
The value of an investment can go down as well as up so you may get back less than you invested. Overseas investments are subject to currency fluctuations and emerging markets may be more volatile than established markets. Reference to specific securities should not be construed as a recommendation to buy or sell these securities, but is included for the purposes of illustration only. Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. This information does not constitute investment advice and should not be used as the basis of any investment decision, nor should it be treated as a recommendation for any investment.