Ian Cowie: US trusts set to benefit from ‘Biden bounce’

Joe Biden’s$1 trillion infrastructure stimulus scheme has major implications for investors, points out our columnist.

You don’t need to be an American or to know much about its central bank, the Federal Reserve, to understand the wisdom of the Wall Street warning: “Don’t fight the Fed”.

No matter how big an investor you may be, it is bigger than you are. If you get in the way of the Fed, it will crush you without even being aware you were there.

More positively, this week’s victory for Joe Biden, the president of the United States, in signing into law a $1 trillion (£741 billion) infrastructure stimulus scheme has major implications for investors. All that extra demand from the Fed for a relatively fixed supply of real assets - such as materials, property or shares - is very likely to push prices up.

Coming down from the clouds, this is good news for many investment companies with exposure to the American economy - including two where I am a shareholder.

More than a decade ago, I invested in JPMorgan US Smaller Companies (LSE:JUSC) via a paper-based broker that’s no longer in business and transferred this holding to my ‘forever fund’ at 150p per share in March 2014. They cost 459p this week and might have further to go.

As discussed here earlier this year, JUSC has a widely diversified portfolio - with total assets of £334 million - where the fund management team has been led by Don San Jose since 2008. Shares in the ‘industrials’ sector account for 24% of assets, followed by ‘financials’ with 18% and ‘healthcare’ at 14%.

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Folk who fear ‘technology’ valuations look frothy may be reassured to find these shares account for only 12% of JUSC’s portfolio, just behind ‘consumer discretionary’ at 13%. More than half its assets are allocated to businesses with a stock market capitalisation between $1 billion and $5 billion.

JUSC’s most valuable holding is WillScot (NASDAQ:WSC), the Phoenix, Arizona, firm that markets mobile offices and portable storage containers. Just the sort of kit you might need if you are building new roads, bridges and railway upgrades funded by the Bipartisan Infrastructure Bill (BIB).

Second place is held by BJ's (NYSE:BJ), a warehouse club chain based in Westborough, Massachusetts, whose website offers to meet “all your needs from groceries and paper products to TVs and tires”.  But not, presumably, an English dictionary.

Third ranked is ICU Medical (NASDAQ:ICUI), a San Clemente, California-based company that develops healthcare technologies used in vascular therapy and oncology treatments.

Other notable top 10 assets include Lincoln Electric (NASDAQ:LECO), the Cleveland, Ohio-based manufacturer of arc welding equipment, plasma and oxy-fuel cutting gear. Handy stuff, once again, for all those new roads, bridges, and railway upgrades.

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What has it all meant for JUSC shareholders? According to Morningstar via the Association of Investment Companies (AIC), it has delivered total returns of 31% over the last year, 98% over the last five years and 470% over the last decade. But the shares continue to trade 4% below their net asset value (NAV).

Further up the corporate scale by size - and potentially a bigger bargain - I recently invested in a blue chip of the AIC ‘North America’ sector: Canadian General Investments (TSE:CGI). On 4 November, I paid £24.39 for shares that cost £26 this week.

Once again, it is a broadly diversified portfolio with about 60 holdings, but with more of a tilt towards ‘information technology’ which accounts for 29% of assets. CGI’s most valuable holding is Shopify (TSE:SHOP), the Canadian e-commerce platform, similar to Amazon (NASDAQ:AMZN) or Alphabet (NASDAQ:GOOGL).

Second stands the artificial intelligence chip-maker NVIDIA (NASDAQ:NVDA), followed by the software provider Lightspeed Commerce (TSE:LSPD).

The e-commerce giant, AMZN, and software provider, Square (NYSE:SQ) also feature in its top 10 holdings. 

Franco-Nevada Corp (TSE:FNV) adds gold to the mix, while First Quantum Minerals (TSE:FM) brings in copper, nickel and silver. West Fraser Timber (TSE:WFG) sells a wide range of wood products from lumber to laminated veneers. Nearly 16% of CGI’s assets are described as ‘materials’.

Canadian Pacific Railway (TSE:CP), the transcontinental freight transport system, is CGI’s sixth-most valuable asset and a relatively cleaner, greener way than trucks or planes to move things long distances.

What it all boils down to for CGI shareholders are total returns of 44% over the last year, 177% over the last five years and 294% over the last decade. As discussed here in September, CGI is one of 42 investment companies that multiplied shareholders’ capital ten-fold over the last 20 years.

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Despite this Canadian $1.45 billion (£865 million) investment company paying annual dividends every year since it was launched in 1930, the shares continue to trade at a 33% discount to NAV. Highish charges of 1.49%, gearing of 11% and a 2% yield may offer some explanation, as might a 53% controlling stake by the Morgan family who, along with the Meighens, have been fund managers since 1956.

Despite such details, both CGI and JUSC stand to benefit - directly or indirectly - from the ‘Biden bounce’. Elevated stock market valuations do not prevent me from hoping for more to come from other North American shares in my ‘forever fund’ led by the tech giant, Apple (NASDAQ:AAPL), followed by the tractor-maker, Deere (NYSE:DE) with the burger flipper, McDonald's (NYSE:MCD) in third place by value.

There was a time when such a big deal as the BIB in the world’s largest economy would have received extensive coverage in the business pages of the British press. Not now. Even so, to paraphrase the former American senator, Everett Dirksen: “With $1 trillion here and $1 trillion there, pretty soon you are talking serious money.”

Ian Cowie is a freelance contributor and not a direct employee of interactive investor. 

Ian Cowie is a shareholder in Apple (AAPL), Canadian General Investments (CGI), Deere (DE), JPMorgan US Smaller Companies (JUSC) and McDonald’s (MCD) as part of a globally diversified portfolio of investment companies and other shares.