Ben Lord M&G
Experts from investment groups Abrdn, BNY Mellon Investment Management, M&G Investments, and Schroders gave insight into a 2022 threatened by the war in Ukraine and spiraling interest rates, yet also showing signs of promising long term investment opportunities.
Global equities
While immediate concerns are roiling the markets, it’s always important for investors to have more distant time horizons when building a portfolio. Considering long term global strategy was George Dent, client investment manager of Walter Scott, part of BNY Mellon Investment Management.
Walter Scott focuses on global equities, and is based out of Edinburgh with a team of 21. At the heart of the firm’s investment philosophy a belief that it’s companies not markets that ultimately drive investment return.
One business Mr Dent identified as having growth potential even in an economic environment constrained by inflation was Danish pharmaceutical giant Novo Nordisk. On one hand, the Western world, and even the world as a whole, is going through a continuing and escalating obesity crisis largely due to the mass consumption of sugar, and as a manufacturer of insulin for treating diabetes Novo Nordisk is set to benefit from this trend.
While noting that profitability in the healthcare sector largely arises from innovation, even for a static product such as insulin there is enough room for manoeuvre in that prices can be raised accordingly with inflation in such a way that would not cause negative backlash.
Mr Dent also pointed to the firm Keyence as a Walter Scott investment with a promising future of high profitability and great pricing power. This Japanese sensor manufacturer creates components critical to robotics and artificial intelligence in manufacturing, and as AI replaces manual workers in many circumstances over the coming decades its relevance will only increase.
Climate change
Even with rising inflation and the ongoing conflict in Ukraine, the Joint Investment Forum was keenly aware of the ongoing climate crisis, this year coming off a COP26 climate event in Glasgow that showed some progress yet did not have the seismic effect that many were hoping for.
Discussing multi-asset climate solutions was Daniel Bowie-Macdonald, investment specialist at Abrdn. He says: “Climate change is the biggest threat to our planet. Finally, the world is coming together to fight it. At the heart of the battle are the companies whose products and services are helping us move towards a zero carbon world. Many are just small businesses now, but with a supportive government policies, they will be the giants of the future.”
When asked of the issues in environmental, social and governance (ESG) data, notably a lack of unifying third party data meaning a lack of clear oversight for firms and investments, Mr Bowie-Macdonald pointed to Abrdn creating its own proprietary ESG score in response to this. While this may lead effective readings for Abrdn, yet another in house move is in itself a sign of how hopelessly bifurcated ESG data has become.
Inflation
While focus was ostensibly on fixed income with Ben Lord, a fund manager at M&G Investments, focus soon turned to the macroeconomic factors pressing so on this investment sector. An especially keen eye was placed on the inflationary environment, and Mr Lord painted a grim assessment of the rest of the year, outlying a plausible scenario in which inflation in the UK could hit 9 percent.
Of the UK, he says: “There was a huge, almost war time response to the Covid-19 pandemic, and resulting huge amounts of government spending. This came after the great financial crash of 2008 which led to huge increases in government debt, but which we never actually started paying down. So we're now at levels that are very similar to where we were coming out of the Second World War. How are we going to pay this off?
“It doesn't feel to me like austerity is around the corner. It doesn't feel like government is going to start tightening yet. Now if that's right, and we are going to fiscally loosen, that to me suggests that there is a risk of more inflation.”
Mr Lord also pointed out further areas of pressure, notably mortgages in the UK, and oil and gas prices across Europe, that are going to push inflation and cost of living up.
Global Cities
Stuart Podmore, investment propositions director at Schroders, saw long term horizon potential in the world’s ever evolving cityscapes, citing data showing that at current trends 63 percent of the world population will be living in cities in 2035, and 90 percent in 2100.
One factor of changing cities may seem obvious, that of corporate space being radically downsized as an office with working from home hybrid seems increasingly plausible for many. However, Mr Podmore notes that portfolios with exposure to corporate space in the Asia market may have less cause for concern, as a culture of office work and a need for punctuality and being present still holds strong.
Mr Podmore also gave an example of a corporate property business that benefits from a modern cities approach, Alexandria, a REIT that invests in laboratories and office buildings.
“Many of Alexandria’s properties are based in Boston. The first really key point to note is great transportation rates for the city, and that this is a factor that we use to assess many different global cities.
The other factor we use very often is universities, and Harvard plus MIT and many others are in the area. There are also a cluster of biotech companies there, which we think are particularly appealing. And this creates an environment of what we would describe as collision and collusion”, says Mr Podmore.
