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Weekly insights from the Trail

Three things that got the team talking this week

July 28, 2023August 4th, 2023
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1. US companies are reshoring their manufacturing…

The total value of manufacturing construction spend continues to accelerate in the US. The annual value of spend is now 57% above levels just a year ago. Booming spend is being driven by a wave of new reshoring projects. These includes investment in semiconductor, electric vehicle battery, and renewables supply chain manufacturing projects.

Structural forces, led by the Biden Administration’s Inflation Reduction Act, are driving the heightened level of investment in local manufacturing capabilities.

Source: US Census Bureau, Firetrail, June 2023

2. Broader US non-resi construction outlook is holding up well…

Companies we’re speaking to are also seeing a healthy outlook for other forms of US non-residential construction. This week, S3 Global Opportunities portfolio holding United Rentals pointed to strong demand from public road, highway, communications, energy, transportation and healthcare construction.

The chart below also highlights that construction activity, when adjusted for inflation and population growth, remains below long-term averages. We believe this provides support to medium-term construction activity (in select sectors) despite a slowing economy. We hold select positions in companies exposed to US non-residential construction with strong bottom-up fundamentals. Valuations are factoring in an outlook which is far too negative compared to what we believe is warranted.

Source: United Rentals, July 2023

Companies mentioned are illustrative only and not a recommendation to buy or sell any particular security.​​​​​

3. Chinese youth unemployment surpasses 20%…

China’s youth unemployment rate continues to trend higher, surpassing 20% in 2023. The issue doesn’t seem to be a lack of work, but a lack of high-skilled, high wage jobs that graduated college students have spent years studying for.

With a population now in decline, there are plenty of jobs available in areas such as manufacturing, and services like housekeeping. However, graduates are preferring to tap out of the job market entirely, or ‘lying flat’ as they are calling it on social media, rather than take a job below their expectations.

Source: OECD, WIND, Macquarie Macro Strategy, July 2023

Disclaimer

This article is prepared by Firetrail Investments Pty Limited (‘Firetrail’) (ABN 98 622 377 913, AFSL 516821) as the investment manager of the Firetrail Australian High Conviction Fund (ARSN 624 136 045), the Firetrail Absolute Return Fund (ARSN 624 135 879), the Firetrail Australian Small Companies Fund (ARSN 638 792 113) and the Firetrail S3 Global Opportunities Fund (ARSN 653 717 625) (‘the Funds’). Pinnacle Fund Services Limited ('PFSL') (ABN 29 082 494 362, AFSL 238371) is the product issuer of the Fund. PFSL is not licensed to provide financial product advice. PFSL is a wholly-owned subsidiary of the Pinnacle Investment Management Group Limited (‘Pinnacle’) (ABN 22 100 325 184). The Product Disclosure Statement (‘PDS’) and Target Market Determination (‘TMD’) of the relevant Fund are available via the links below. Any potential investor should consider the PDS and TMD before deciding whether to acquire, or continue to hold units in, the Fund.

Links to the Product Disclosure Statement: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

Links to the Target Market Determination: WHT3810AU, WHT5134AU, WHT3093AU, WHT7794AU

For historic TMD’s please contact Pinnacle client service Phone 1300 010 311 or Email service@pinnacleinvestment.com

This communication is for general information only. It is not intended as a securities recommendation or statement of opinion intended to influence a person or persons in making a decision in relation to investment. It has been prepared without taking account of any person’s objectives, financial situation or needs. Any persons relying on this information should obtain professional advice before doing so. Past performance is for illustrative purposes only and is not indicative of future performance.

Whilst Firetrail, PFSL and Pinnacle believe the information contained in this communication is reliable, no warranty is given as to its accuracy, reliability or completeness and persons relying on this information do so at their own risk. Subject to any liability which cannot be excluded under the relevant laws, Firetrail, PFSL and Pinnacle disclaim all liability to any person relying on the information contained in this communication in respect of any loss or damage (including consequential loss or damage), however caused, which may be suffered or arise directly or indirectly in respect of such information. This disclaimer extends to any entity that may distribute this communication.

Any opinions and forecasts reflect the judgment and assumptions of Firetrail and its representatives on the basis of information available as at the date of publication and may later change without notice. Any projections contained in this presentation are estimates only and may not be realised in the future.

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This may contain the trade names or trademarks of various third parties, and if so, any such use is solely for illustrative purposes only. All product and company names are trademarks™ or registered® trademarks of their respective holders. Use of them does not imply any affiliation with, endorsement by, or association of any kind between them and Firetrail.

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