- BNY Mellon Investment boutique sees economic recovery boosted by six profit themes
- It sees investment themes related also to manufacturing and the rotation of funds into U.S. equity markets
A resurgent construction industry, the U.S. energy renaissance, the evolution of technology and a second iteration of health care reform are likely to create opportunities for investors in 2014, according to the U.S. Small Cap Growth Team for The Boston Company Asset Management (TBC). TBC is BNY Mellon's Boston-based equity specialist.
The team published its forecast in Investment Themes for 2014. In addition to the four themes related to energy, construction, technology and health care, the small cap team also said it sees investment themes related to manufacturing and the rotation of funds into U.S. equity markets.
On the macro side, the report said that tapering of the quantitative easing program combined with a continuing accommodative monetary policy could reduce pressure on the dollar, help draw money into U.S. markets from emerging markets, and also help to reduce commodity prices. The team also said it expects that the prospect of rising interest rates could shift money from bonds to stocks.
Looking at specific sectors, the team cited the energy renaissance, driven by meaningful improvements in extracting hydrocarbons, as a major positive development. Todd Wakefield, senior portfolio manager on the small cap team, said, "We see the energy sector as a leader in job creation and capital spending. Furthermore, the country's move toward energy self-sufficiency is resulting in structural changes to our trade deficit and foreign policy."
Other factors worth considering for 2014, according to the report, are a potential increase in spending on both commercial and residential construction, in addition to continuing developments in technology.
Regarding housing, the TBC small cap team said the inventory overhang from the previous housing bubble has diminished, although household formation continues to be slowed by poor employment opportunities for the 25-to-34-year-old age group. Household formation is an important driver of housing, the report said. TBC said it expects improving employment in this age group will drive higher household formation, fueling housing demand.
Opportunities in technology
In technology, TBC sees growing opportunities in security, Big Data, cloud-based computing systems and social media technology. TBC also said it expects the Internet of Things to proliferate as more appliances, vending machines and other non-traditional computing devices are linked to the Internet so they can be better controlled and monitored remotely.
TBC said it also expects opportunities to develop in health care and manufacturing. "Millions of people are joining the health care system while reimbursement will be reduced for many providers as a result of the new regulation," Wakefield said. "In the sector, we are focused on innovative companies that have pricing power."
In manufacturing, the report notes that 3D printing has the potential to dramatically change production processes, although it will be difficult to select the firms that will dominate the business.