Legg Mason affiliate ClearBridge Advisors believes the case for investing in US medium and large-cap companies is the best in more than 50 years.
Scott Glasser, co-manager of the Legg Mason Clearbridge US Appreciation fund, says despite recent volatility and the muted economic environment, the underlying fundamentals in many American stocks remains robust.
"Over quarter two we saw the environment shift from markets in which complacency had set in, to wide scale pessimism," Glasser says.
"However, despite this overly negative backdrop we believe that medium and large companies are in the best financial shape seen in decades.
"Stocks have inherent risks and volatility but sometimes the risk-reward pendulum favours them. With interest rates low and a subdued economy and diminished inflationary expectations, stocks have perversely become attractive again."
Clearbridge US Appreciation has overweight positions in the industrials, consumer staples and materials sectors - with underweights to IT, financials, healthcare, utilities and consumer discretionary.
The fund's largest holdings are insurance giant Travelers, retail conglomerate Wal-Mart and the world's largest oil refiner Exxon Mobil.
"Investors can now buy a variety of stocks whereby the dividend yields will grow over time, well above the risk-free rate of return," Glasser adds.
"Cash on corporate balance sheets is at levels rarely seen and dividends have been raised for many. The overly rosy expectations for earnings have also come down, muting the potential for disappointment down the road."
