Amazon, Nestlé, Rio Tinto

Paul highlights our new client portal before cautioning investors against market timing. The rapid advance of digital technology during the pandemic has been fascinating to watch. In the space of just over a year its acceptance and use has leapt forward by a decade. Most of us have had to contribute to this transition – under lockdown, communicating with our families, holding business meetings, sharing documents, ordering goods and services and finding TV programmes, could only be done over the internet. Many people, who had never written an email before, realised they had to embrace everything from WhatsApp to internet shopping, streaming, and Zooming. Digital, in short, has become a way of life. Against this backdrop, we realised that technology would become an even more important part of our services to clients and far sooner than we had previously considered possible. We have therefore spent time during lockdown considering how we would introduce more technology, whilst not losing the human interface that we consider so important. We have felt for a while now that our existing portal was no longer fully fit for purpose, particularly with regards to our Segregated Services approach to portfolio management. Unsatisfied with some of the limitations of an external build, about two years ago (and well before Covid-19 struck) we decided to develop the latest version internally. This puts us in a better position to explore the digital opportunities that new technologies are creating and will help us continue to innovate when it comes to delivering investment management and planning. In that context, I am delighted that a great many of you have told us that the new MyKillik represents a significant improvement. However, I recognise that some have either experienced difficulties with logging in or feel that the old version better met their needs. I apologise most readily to those of you that have encountered such issues. Do be assured that we are trying to better understand your needs, with a determination to give you the experience that you seek. To help us on that journey, please send your comments and any suggestions for improvements that you would like to see to clientsupport@killik.com.

Relaunching MyKillik

Paul Killik

Senior Partner

Reducing rotation

In recent months, the press has made frequent references to the supposed merits of rotating out of what they deem expensive “growth” areas of the market in favour of “value”, at either an individual stock or sector level.

I would urge you not to entertain such an approach as a long-term investor – it is no more likely to yield results than trying to anticipate a fall in the market by selling ahead of it, in the hope of buying back into it at cheaper prices later. Anyone who believes that they can consistently remain one step ahead like this is almost certain to lose money over time. This fact does not stop the many young professional investors working in the funds industry, or managing institutional capital, from risking other peoples’ money every quarter in an attempt to stay ahead of their benchmark. In the process, they lose sight of the fact they should be taking a long-term view. That is why so many active managers are outperformed by index trackers – they are simply too active. That said, index-matching or “hugging” is backward looking and buys yesterday’s successes. A far-sighted long-term active manager, on the other hand, with conviction about the direction of travel, should comfortably outperform such an approach over a decent time horizon. Rotation is, nevertheless, a fact of investment life. So, how does our investment process overcome the fact that its popularity can sometimes lead to prolonged periods of lesser performance? Firstly, through a focus on the delivery of long-term capital growth. This means we target businesses that are exposed to attractive and enduring themes that, in aggregate, are capable of compounding earnings and cash flows by at least 10% per annum over a rolling 5-year period. That rate is well above the stock market’s longer-term average. We also have a differentiated approach to growth, focused on identifying the type we expect a company to deliver and assigning holdings to one of three growth categories – Fast, Defensive and Cyclical. As a snapshot, a typical Fast Growth company is Amazon which is benefiting from the rapid expansion of e-commerce, driven by operational performance rather than GDP growth. Meanwhile, our Defensive Growth category encompasses names such as Nestlé, a durable global franchise that we expect to thrive in most economic environments, and which is being reenergized under a new management team. Our final category, Cyclical Growth, includes the likes of mining giant Rio Tinto. Whilst its performance is tied to macroeconomic and capital cycles, the firm should nonetheless benefit from longer-term rising copper demand across the power and construction sectors, alongside the increasing adoption of electric vehicles. By blending these categories together within a portfolio, we aim to deliver consistent performance across the economic cycle. Further, by not chasing rotational swings, we can remain focused on the fundamentals that drive returns over the long-term. ●