What a challenging year 2020 has turned into, but from a purely investment perspective global lockdown has in fact reinforced the credentials of our five main stock selection themes (Ageing, Automation, Climate Change, Digitalisation and Evolving Consumption), and created a wealth of new opportunities in the process.
Just as a reminder, our global and thematic approach aims to identify secular trends in the global economy, which we expect to deliver sustainable growth opportunities in any economic scenario over the next decade or more. We then look for a range of disruptors and core growth companies to represent those themes in client portfolios.
Our stock selection is firmly rooted in fundamental analysis of industry structures, competitive forces, balance sheets, management vision and, equally importantly, corporate stewardship. The latter more than ever now leads to constructive and detailed engagements with the management teams of our investee companies, which certainly improves our overall knowledge and understanding of them, but hopefully also makes a positive contribution to their own performance and communication.
In a low growth, low inflation, low interest rate environment, we have to expect regular bouts of volatility from equity markets, similar to the last ten years post the financial crisis, but it is also even more important in this scenario to underpin the long-term credentials of our portfolios with a range of thematic drivers capable of delivering sustainable growth. The economic map in front of us for the next several years argues strongly in my opinion for good quality, active stock selection over passive solutions whose strategies and underlying exposures are driven entirely by the past.
Our Digitalisation theme has been an obvious beneficiary of lockdown, with a huge proportion of the global workforce migrating to remote working, alongside the exponential increase in electronic data, cloud computing etc. In a similar vein, lockdown has accelerated the trends identified by Evolving Consumption, with consumers deserting the high street, shopping online, streaming entertainment and other on-line services.
What is bad news for traditional retailers and commercial property companies has been a gold-plated outcome for the likes of Amazon and Alibaba. While retail is one of the more obvious examples of digital disruption, many other sectors are just beginning their digital transition. Across the wider economy, adoption of digital products and services remains relatively low and that presents a significant investment opportunity.
Automation is another of our themes clearly boosted by this year’s events, with warehousing and logistics firms adapting to the near-term shift in consumer demands, and the global supply chain being challenged to prove it can maintain reliability in lockdown mode.
Through the automation theme, we own companies providing long-term solutions to boost efficiency and optimise workplace environments. A good example of this is the French company, Schneider, at the forefront of smart infrastructure technology, the adoption of which will also be a key component of the world’s transition to decarbonisation.
And that brings us onto Climate Change, arguably the theme whose potential from an investment perspective has received the biggest boost of all in 2020, thanks in part to China’s surprise adoption of a net zero carbon emissions target by 2060. The Chinese announcement a few weeks ago was swiftly followed by Japan. With the EU already onboard, this essentially leaves only the USA to complete a full house of the world’s major economies; if Biden wins the election, the US announcement won’t be far behind.
The subsequent capex required to achieve these ambitions globally is undoubtedly going to represent one of the greatest multi-decade investment booms in economic history – possibly the greatest ever.
Whether it is the permanent shift from high street to online purchasing, or countries, regulators and businesses intensifying their commitment to a sustainable future, or the irrepressible impact of demographic change on healthcare, leisure and consumption, global and thematic investing is already demonstrating its long-term value in the new normal.
Sarasin & Partners LLP is a London-based asset manager that manages £15.2 billion* on behalf of private clients, charities, institutions and pension funds from the UK and around the world.
We take a global, long-term, thematic approach to investing, with responsible investment at its core. Our commitment to stewardship principles means we embed environmental, social and governance considerations into our investment process, and consider ourselves stewards of our clients’ assets.
*as at 30 September 2020