Focus on quality companies that can weather shortterm inflationary pressures

BY SCOTT COOPER Investment Professional, Marriott

In the second half of 2021, a range of economic factors are front of mind for investors and asset managers alike. Most important, perhaps, are the shorter-term inflationary pressures we are currently facing, and the longer-term macroeconomic challenges that underpin the search for a global recovery from the pandemic. At Marriott, our key focus is to identify companies that are well suited to the long term, and that can effectively deal with shorter-term inflationary pressures.

It is no surprise that recent inflation numbers, such as the 5.4% headline CPI in the USA, have been elevated. Base effects, global shipping challenges, manufacturing bottlenecks and unprecedented economic stimulus are all contributing towards higher inflationary numbers.In order to effectively combat input cost inflation, companies must be able to utilise pricing power to maintain their margins.

Although inflation and the reopening of economies have been areas of focus for market commentators, we must still consider the underlying global macroeconomic conditions. In 2020, global debt climbed to an all-time high: approaching $300tn. Further, it has become evident that the pace of economic recovery is very uneven across the globe. China’s economy managed to surpass pre-pandemic levels during 2020, and the US economy is expected to do so in the near future, if it hasn’t already. The UK, however, is only due to recover to pre-pandemic levels in the middle of 2022, and many other countries may not recover until 2023 or beyond. The elevated debt levels and uneven global recovery are likely to weigh on global growth.

Should investors be worried? It depends on the type of companies they are invested in. Proctor & Gamble, for example, a company held in our international equity portfolios, has an excellent track record of growing dividends even through market and economic turmoil – as demonstrated in the graph below. They have increased dividends 65 years in a row, including a 10% increase earlier this year (compared to a double-digit decline globally).

Aside from an excellent track record, the company boasts a strong balance sheet, is diversified across countries and product lines, and holds market-leading positions resulting in powerful brand loyalty and pricing power. Last year, Proctor & Gamble was able to grow its organic revenue and core earnings per share by 6% and 11% respectively despite the pandemic and, looking forward, has already announced price increases for key product lines later in the 2021 calendar year.

At Marriott, we believe there are a range of companies that are well suited to the long term and which can effectively deal with short-term inflationary pressures. Companies of this nature tend to be less volatile and more resilient, meaning that outcomes for investors are more predictable. Our international equity portfolios contain many such companies. These portfolios can be accessed via:

• Marriott’s offshore share portfolio (International Investment Portfolio)

• Marriott’s international unit trusts (using your annual individual offshore allowance of R11m)

• Marriott’s local feeder funds, which invest directly into our international unit trust funds (rand-denominated).