PERSONAL VIEW
are operating in the UK on 20th-century systems, they have entered the 21st. We cannot compete with either the scale or speed of their rollout in the West.
How rapidly is technology evolving?
important because the appetite for this type of technology is enormous. Moving down the chain, we also own Northvolt, which could become one of the biggest manufacturers of batteries in Europe. Meanwhile, a holding in ChargePoint, reflects our faith in what could become the biggest electric vehicle-charging network. Thinking further ahead, we even own some flying car companies. This might have been the realm of science fiction a decade ago, but as battery energy density improves, and costs fall, they are becoming a commercial possibility.
How important is China? Very. I recently spoke to the CEO of Shopify, a firm that provides the tools for retailers to operate online, about where he looks globally for creativity and new ideas. His reply, “The East Coast of China.” That is because it is the one place in the world, outside of Silicon Valley, where entrepreneurs invest significant amounts of their own capital in innovative fast-growing private businesses. They have another huge advantage in the sheer scale of their domestic market. For example, as many consumers in China use a smartphone as those in Europe and the US combined. As a result, new products can take off very quickly. That is why we own Meituan Dianping. They deliver close to 25 million meals a day in China, compared to, say, Just Eat or US giant Grubhub, where the number is more like 500,000. The difference is also evident in the underlying infrastructure. Mobile payments, which are ubiquitous in China, make the point well. Whilst we
Moore’s law states that the amount of computing power that you can buy for $1 doubles every 18 months. Extend the timeframe and in ten years’ time $1 will buy close to 100 times the computing power it does now. If we apply that principle to a firm such as Amazon, it is possible that the technology that powers their shop front will be 100 times more powerful in another decade, a fact that should make conventional retailers very nervous. In that context, when it comes to the more outlandish technologies, such as the flying cars I just mentioned, investors must view their future growth path through the lens of them deploying 100 times their current processing power and delivering three or four times the energy efficiency they do today in a matter of years. That is why it pays to be open-minded about the best future investing opportunities. Sebastian Lyon, Founder and Chief Investment Officer at Troy Asset Management
What is your view on inflation? There is little certainty about where it might go in the medium to long-term, however I think that the pandemic has changed its potential trajectory. Up until the start of 2020, big deflationary forces around the globe were underpinned by the relentless march of technology, high debt levels and demographics. That triumvirate has presented Central Banks with big headaches when it comes to stimulating growth. After the last financial crisis, they responded by entering a new era of zero interest rates and vast amounts of quantitative easing (QE). The events of 2020, however, may have been the trigger for an important
FUNDS IN FOCUS
change in direction. Prior to then, the fruits of QE went largely to the banks to shore them up. In the UK, Chancellor George Osborne tightened fiscal policy, whilst allowing monetary policy to remain loose. The net effect was that all the money that was being printed never made it into the real economy, and that created deflation. More recently, however, we have seen more in the way of “peoples QE” and so investors should now be more alert to inflation. Although we are not about to lose sleep over a short-term oil price spike, for example, we need to consider how the world will look in 2022 and beyond. Most people below the age of about 60 will not be used to living in any sort of inflationary world. As stock pickers, that sort of backdrop would see our focus switch more heavily towards avoiding losers as well as selecting winners, because businesses that are not structured to deal with inflation will come under huge pressure if it re-emerges. For me, the key signal of a change will be wages growth. Once that starts to lift off, inflation can quickly become embedded in the wider economy. If, on the other hand, it stays subdued then the trio of disinflationary forces I mentioned earlier will probably prevail once more.
How do you determine your asset allocation? We have always operated four investing “buckets”. Starting with equities, pre-pandemic we lived through a largely uninterrupted bull market from March 2009. As a result, valuations are relatively high. When it comes to wealth preservation, we need to accept that the buying opportunities that were available a decade ago are not there now. That explains why our equity allocation came down to only around 30% pre-pandemic. It spiked a bit as the virus took hold and we increased our exposure to the growth names that we have always liked. In more recent months, however, we have been bolstering our cash reserves following a solid market run up. Summer 2021 — 17
