Saturday, November 18th, 2017

Investing in the spirit of innovation and growth

From the outside the United States looks like a troubling place to invest, with an unchecked deficit and a slowing economy. But when Phil Taller, Manager, Mackenzie Universal American Growth Class, travels across the US, he finds another America behind the dark headlines – one that is thriving by constantly resetting the limits of technology.  Innovation and growth are two key themes you’ll find running through Taller’s fund, from data miners to smokestack-era industries prospering in the digital age. “There’s a reason why Google, Amazon and Facebook all come from the US,” says Taller. “It comes from a spirit of innovation and growth that has been battered by some tough times, but is still head and shoulders above most countries.”

On one of his scouting trips into the US late last year, Taller found himself at Chart Industries in Minnesota, standing beside a giant cylinder used to store liquid natural gas (LNG). Chart is a global manufacturer of highly engineered equipment that requires skilled welders and x-ray equipment to produce the giant vessels used in multi-billion-dollar LNG projects. And company sales were up 33% in the first quarter over the previous year, in part because more LNG plants are expected to be developed in the US and Canada as natural gas reserves grow.

While some analysts might suggest production at Chart could be threatened by cheaper offshore manufacturers, Taller sees it the opposite way. He argues that the skill and technology required to build the pressure-sensitive cylinders cannot be readily found in lower-wage countries like China. In fact, Carlisle Companies, a manufacturer of construction materials and a major holding in the fund, has repatriated production precisely because they could not make it as efficiently in China. Carlisle’s earnings per share surged in the last quarter, which doesn’t surprise Taller. “The US manufacturing sector, and what it produces in profits, is at an all time high,” explains Taller. “And that’s because it uses technology to become more productive all the time.”

If, as Taller has found, the decline of the US manufacturing sector is largely a myth, a second myth suggests that US banks are all equally moribund. Taller, however, recently added IBERIABANK of New Orleans to the fund, to go along with two others it already owns. IBERIABANK, because it is primarily a conservative commercial lender, managed to avoid the worst of the mortgage meltdown. And because it was financially healthy, it was able to acquire five other banks that had to be rescued by the US government during the financial crisis.

Like the fund’s other bank holdings, City National Bank in California and Signature Bank in New York, IBERIABANK has started to grow its loan book at a double-digit clip. “The big US banks have tarnished their reputation over the last few years,” says Taller, who recently travelled to Chicago to meet with IBERIABANK executives. “But banks like these are very client-focused and have been able to increase their market share.”

America’s digital frontier continues to expand, and he recently purchased Jive Software – a kind of Facebook for corporations. It provides a platform for employees to work on projects simultaneously, while reducing the number of emails and improving customer support. The company has proven to be almost too successful, and after Taller bought the initial public offering the share price doubled and he sold. “We had to sell because we felt the valuation had gotten out of hand,” says Taller. “I just wished we owned more.”

Emerging trends that take advantage of new technology also attract Taller’s attention. Take Progressive Corporation for example. It’s an insurance company that is benefiting from rising premiums and Snapshot a technology that lets the company assess a prospective client’s driving ability.

Progressive isn’t new to innovation. It pioneered the use of credit histories to determine the risk associated with potential customers. A higher credit risk would be turned down, leaving the firm with better customer base. Now it is deploying Snapshot, which is attached to a potential customer’s car for 90 days to determine how a person drives. “If you could actually price insurance based on actual driver behaviour, then you start to get much more accurate pricing,” explains Taller. “And this precise data should give Progressive an advantage over its competition.”

And in many ways Progressive Corp. represents two reasons why Taller remains optimistic about America’s future: the continued development of new technology in hands of people with the entrepreneurial savvy to use it.

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