Rethinking exposure to US? The domestic shares the pros are buying

While much of the market’s recent focus has been on artificial intelligence (AI), mega-cap tech, and international diversification, another side of the US economy is quietly drawing investor attention.

Structural and cyclical trends in the American economy – from reshoring and infrastructure spending to falling interest rates and consumer recovery – are creating opportunities in largely overlooked stocks.

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David Harrison, manager of the Rathbone Greenbank Global Sustainability fund, is particularly focused on what he calls ‘Main Street America’, making regular visits to the US to assess conditions on the ground.

He points to political support for infrastructure spending as a major driver for domestically oriented stocks.

“First there was the Inflation Reduction Act during the Biden administration and now there is a clear drive to re-shore many critical industries under the Trump presidency,” he says. “As they typically sit outside the mega-cap space, many domestic US names are not front of mind for all investors, which creates a clear opportunity.”

Harrison has been actively adding to US domestic exposure. Today, just over of the portfolio is in the US, with industrials, healthcare, and financials making up significant portions.

“We’ve been looking specifically at US mid- and small-cap domestic plays this year,” he says. “We already had an allocation but have bought several new names focused on US industrial production and consumer recovery that are below the radar and perhaps misunderstood.”

In the mid-cap space, new positions include APi Group (NYSE:APG), the leading US fire and safety testing business in a fragmented but regulation-driven market, and Owens-Corning (NYSE:OC), a roofing and insulation specialist set to benefit from a recovery in housing activity.

“As US interest rates start to decline, a number of consumer and housing-related stocks should do well and we have been adding to our exposure here,” Harrison says.

Other recent additions are Quanta Services (NYSE:PWR), a transmission and power infrastructure contractor; Veralto (NYSE:VLTO), a spin-off from Danaher focused on water testing and treatment; and Amphenol (NYSE:APH), a manufacturer of connectors and sensors.

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From factories to frontlines: industrial opportunities

Some of the most compelling US domestic opportunities are emerging from policy-driven trends in manufacturing and defence.

Premier Miton’s macro thematic multi-asset team has been buying companies set to benefit from the country seeking to rebuild its industrial base and reduce reliance on foreign suppliers.

“The US has belatedly realised that its support for free trade and globalisation endangers its position as global hegemon,” says Premier Miton fund manager David Jane. “The hollowing out of US manufacturing capability and the simultaneous build-up of government debt has greatly weakened its ability to dominate the rest of the world economically and militarily.

“Hence, it is now pursuing what we call economic nationalism. As a result, several sectors are already benefiting, and we expect these – along with others – to continue performing well in the future.”

Initially, his team focused on US-based companies providing outsourced manufacturing services, the direct beneficiaries of reshoring, with the next layer of opportunity lying with firms that build and fit out factories.

“Both of these tend to be in the mid-cap space and, as such, nicely diversify away from the ongoing obsession with AI,” says Jane.

Holdings added to the Premier Miton Cautious Monthly Income fund to capture these trends include Jabil (NYSE:JBL)(electronics manufacturing services), EMCOR (NYSE:EME)(industrial engineering and construction), and Fabrinet (NYSE:FN) (precision manufacturing and assembly).

As US manufacturing expands, energy demand is rising. Companies providing energy and associated infrastructure have faced regulatory hurdles for years, but these barriers are easing, allowing businesses such as Vistra Corp (NYSE:VST) to grow.

Minerals are another focus. The US remains dependent on Russia for uranium and China for many rare earths, despite domestic availability. Jane’s team sees opportunities across the metals and mining sector as the US and its allies shift supply chains back home.

Aegon Asset Management turned positive on select areas of the defence sector early this summer following a sector-wide selloff at the end of 2024 amid concerns over funding.

“Winners and losers are emerging,” says investment analyst Cameron Shanks, highlighting RTX Corp (NYSE:RTX) (formerly Raytheon Technologies) as a recent addition to the Aegon Global Equity Income fund.

“We expect it to win portions of the US Golden Dome program through its strong radar and interceptor portfolio,” he adds. The company also benefits from rising NATO defence spending, with almost half of its order backlog tied to international customers, where margins are higher than on domestic contracts.

Aegon is also monitoring trends in commercial aerospace, where global supply-chain disruptions have slowed new aircraft production, forcing airlines to extend the life of existing planes.

“This is the sweet spot for industry aftermarket revenues as aging aircraft clock more service miles and require more frequent maintenance or replacement parts,” says Shanks. While Boeing and Airbus production slots remain full through the end of the decade, improvements in production rates during 2025 suggest further growth potential.

“Whether they can sustain this momentum and deliver enough new aircraft to support broad airline fleet renewal is a key variable for aftermarket demand,” he adds.

Capital in motion: US financials

US financials are attracting renewed investor interest, as falling interest rates and stronger capital markets activity open fresh opportunities.

Giles Parkinson, managing director and head of equities at TrinityBridge, began increasing exposure to financials in May, at a time when the prospect of the Federal Reserve resuming rate cuts in September was not widely anticipated.

“The ‘soft landing’ narrative that drove global markets last year has been rebooted with the Fed restarting interest rate cuts before the American economy enters a recession,” Parkinson says. “Historically, this has been a heady cocktail for equities.”

He highlights three reasons why US financials could perform well.

“First, their profits are economically sensitive and often linked to capital markets, which should move higher. Second, the stocks are typically ‘higher beta’, meaning that they amplify market movements, up or down. Third, they have generally underperformed the broad market since the tariff relief rally last spring, so there is room for a catch-up,” he says.

To capture these trends, Parkinson added private equity firms Blackstone (NYSE:BX) and KKR (NYSE:KKR), asset managers Ameriprise Financial (NYSE:AMP) and Equitable Holdings (NYSE:EQH), and credit card provider Capital One Financial Corp (NYSE:COF) to the TrinityBridge Conservative, TrinityBridge Balanced, TrinityBridge Sustainable Balanced, TrinityBridge Growth, and the TrinityBridge Select Global Equity fund, and continued to build exposure as economic data confirmed that conditions were indeed supportive of future rate cuts.

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John Bailer, US equity income portfolio manager at BNY Investments Newton, points to both structural and cyclical factors as reasons for renewed confidence in US banks.

“We’ve already seen a number of companies announce major manufacturing plans as a result of the recently passed ‘One Big Beautiful Bill,’” Bailer notes. “US banks should benefit, as they act as the conduit for increased investment and borrowing to fund these operations.”

On the cyclical side, the US Federal Reserve has trimmed rates by 125 basis points, from 5.5% in August 2024 to 4.25% today, with further easing expected.

“Lower short-term rates and a still-steep yield curve should benefit US banks through wider net-interest margins, while capital-market-exposed names will benefit from increased activity to finance growth operations and engage in M&A activity,” Bailer says.

Beyond banking, insurers are also set to benefit from a number of trends, including the adoption of AI.

“We’re already starting to see insurance companies utilising AI in back-office operations – allowing them to be more efficient in evaluating claims, policy underwriting, and pricing,” says Bailer.

He names insurance company Assurant (NYSE:AIZ) and Bank of America (NYSE:BAC) as two high-conviction holdings in the BNY Mellon US Equity Income fund. Bank of America is priced below comparable well-diversified banks, with accelerating loan growth and potential catalysts from share buybacks and dividend growth, while Assurant is steadily gaining market share, driven by strong leadership.

Bailer sees the combination of structural reform and the secular normalisation of inflation and interest rates as putting renewed focus on company fundamentals and valuations.

“Companies and sectors that have spent the better part of the past two decades being overlooked can now be evaluated on a more level playing field,” he adds. “We think this is going to lead to a much broader dispersion of returns across both company and investment performance. This is a great environment for active managers.”