Invest ISSUE NO.6 • SPRING 2020
Riding it Out?
AROUND THE WORLD IN 80 MINUTES Global issues discussed
ESG/SRI
New Decade
Risk
Investment style
Box ticking or reality?
Challenges and opportunities
Where are today's 'safe havens'?
The rise of the underdog?
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01535 656555 | enquiries@rsmr.co.uk | rsmr.co.uk Important Notice This is intended for investment professionals and should not be relied upon by private investors or any other persons. Past performance is not a guide to future performance. The value of investments and any income from them can fall as well as rise, is not guaranteed and your clients may get back less than they invest. RSMR Portfolio Services Limited is a limited company registered in England and Wales under Company number 07137872. Registered office at Number 20, Ryefield Business Park, Belton Road, Silsden BD20 0EE. RSMR Portfolio Services Limited is authorised and regulated by the Financial Conduct Authority under number 788854. © RSMR 2020. RSMR is a registered Trademark
Contents
04 BETTER TIMES WILL COME WELCOME to the latest issue of Invest magazine. ‘We should take comfort that while we may have more still to endure, better days will return.’ Quoting HM Queen Elizabeth is not something I ever expected to do yet this line of her broadcast early in the pandemic struck a chord. We believe the enforced reset of the Covid 19 pandemic will bring about a change in attitudes, behaviour and habits and this movement will drive certain businesses forward. We’re living in a way we’ve never experienced before, what’s important to us will change and our path will be irrevocably altered.
Spring 2020
AROUND THE WORLD IN 80 MINUTES 04 JPMORGAN: Emerging markets & Asia 06 FIDELITY: Developed markets 08 BLACKROCK: Fixed income
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10 COLUMBIA THREADNEEDLE: Overall Macro/Asset allocation
ESG/SRI – BOX TICKING OR REALITY? 12 ABERDEEN STANDARD INVESTMENTS 14 BNY MELLON INVESTMENT MANAGEMENT 16 JUPITER ASSET MANAGEMENT
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18 M&G INVESTMENTS
NEW DECADE – CHALLENGES & OPPORTUNITIES 20 GOLDMAN SACHS 22 NINETY ONE 24 LEGG MASON
Our RSMR in the City conference planned for late March had to be postponed and we had record attendees booked, so to try and provide an idea of what we would have heard at the conference we have asked our Enterprise fund groups to put ‘pen to paper’. We hope the contents help in your discussions with clients
26 LEGAL & GENERAL INVESTMENT MANAGEMENT
28 RSMR CONFERENCE AND
'R AWARDS' 2019 RUDDING PARK, HARROGATE
RISK – WHERE ARE TODAY’S 'SAFE HAVENS'?
This has been an unprecedented period in our lifetimes, and we hope that you and your loved ones are all safe.
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CONTACT DETAILS:
INVESTMENT STYLE – THE RISE OF THE UNDERDOG?
Rayner Spencer Mills Research Limited
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Enjoy the read and keep safe. n
Geoff Mills, RSMR
Number 20, Ryefield Business Park, Silsden BD20 0EE. Tel: 01535 656555 or Email: enquiries@rsmr.co.uk All editorial and advertising enquiries should be directed to sarah.mcculloch@rsmr.co.uk
32 INVESCO PERPETUAL 34 JANUS HENDERSON 36 T. ROWE PRICE
40 BAILLIE GIFORD 42 FRANKLIN TEMPLETON 44 SCHRODERS
Invest magazine is published by Rayner Spencer Mills Research Limited (RSMR). The views expressed do not necessarily reflect the views of RSMR or any other party affiliated to RSMR, and no liability can be assumed for the accuracy or completeness of the content, nor should any of the content be used as the basis of any advice offered. Content is offered on an information only basis and intended only for professional financial advisers and should not be relied upon by private investors or any other persons. Content is published with all rights reserved and any reproduction of content, wholly or in part, must only be made with the written permission of the publishers. © RSMR 2020. RSMR is a registered Trademark.
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AROUND THE WORLD – EMERGING MARKETS J.P.Morgan's Emily Whiting, Executive Director, Investment Specialist for the Emerging Markets and Asia Pacific Equities team takes a look at the effect of COVID-19 in the sector.
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It is clear the COVID-19 has taken hold of the world, its health systems and its financial markets. The required social distancing and shutdowns to control the disease have clear economic costs and we know that these measures cause disruptions in supply, demand, and financial realms – but we do not know how long these disruptions will last or how deep the damage will be. On top of COVID, the low oil price poses challenges for many emerging economies as well as the US. Thus, in our framework, we move out of muddle through and close to recession as these immediate disruptions equate to negative GDP growth expectations for 2020. Central banks and governments have certainly stepped up with unprecedented monetary easing and fiscal packages, but the boost from these efforts is yet to be seen. Markets have derated to account for the initial shocks, with the EM Price-to-book ratio now well below the long-term average. There are still many unknowns on the future path of markets, but we do know that historically these have
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proved to be attractive entry point valuation levels for the long term investor. Globally, the primary challenge is that companies’ revenues and supply chains are being hit. The demand drag caused by social distancing measures means aggregate consumption will be hit globally. We look to distinguish between revenues that are permanently lost due to the quarantine versus revenues that can likely be made up after the virus risk clears, but keep in mind that solvency and business risks often flare up before an economic recovery can take place.
It is clear that the impact of COVID-19 on economies and corporate earnings will be severe.
We have already seen central banks take emergency measures, including ad-hoc interest rate cuts and flexible quantitative easing programs. This can help mitigate the financial risks and liquidity issues businesses would face when revenues are scarce. Globally, large fiscal stimulus programs have been announced in a variety of areas. Fiscal responses in Europe and the US are unprecedented, and China’s playbook allows room for more government spending later in the year. However, the
AROUND THE WORLD IN 80 MINUTES
fiscal room of many emerging markets is more limited. Emerging economies excluding China & Korea are also in the earlier phase of the disease spread, which means we do not yet know the extent of lockdowns and internal demand damage that will occur in the likes of India, Brazil, South Africa etc. As COVID-19 continues to spread across the world, including through emerging markets, it is clear that its impact on economies and corporate earnings will be severe. Against that backdrop, we feel it is more important than ever to take a long term view on those areas in which a disciplined approach can add value. Having a consistent valuation framework allows us to identify where the markets look to be implying a more severe impact in the near term, than might reasonably be expected over a longer timeframe. We believe that the quality franchises with sustainable competitive advantages, consistent cash flow generation and strong management teams, which we hold in the portfolio, are well positioned to navigate the weeks and months ahead. n
This is a marketing communication and as such the views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/ emea-privacy-policy. This communication is issued in Europe (excluding UK) by JPMorgan Asset Management (Europe) S.à r.l., 6 route de Trèves, L-2633 Senningerberg, Grand Duchy of Luxembourg, R.C.S. Luxembourg B27900, corporate capital EUR 10.000.000. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP. 0903c02a8289af5d
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Jochen Breuer, Portfolio Manager
DIVIDEND CUTS – WHY CHINA IS BUCKING THE TREND The Fidelity International team give an insight into why China continues to dish out dividends.
Catherine Yeung, Investment Director
Matthew Jennings, Investment Director
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n normal times, dividend cuts can signal a company in distress. But when it’s the economy itself that’s in distress, cutting or delaying dividend payments can be a sign of corporate prudence. Companies around the world are tightening purse strings as they brace for a global recession in the wake of the Covid-19 pandemic. In the 2008 global financial crisis, dividends were cut by over 20% on average, a figure likely to be more than doubled in this downturn.
Many firms are going ahead with payments as planned, while some have even announced increased payouts.
Some companies are acting on instructions from their regulators while others are responding protectively to an actual or feared reduction in cashflows. And some others are delaying because social distancing means they’ve been unable to hold shareholder meetings to formally approve their payouts. Equity is a long duration asset and a single year’s dividend is not a major part of the intrinsic value of a business. In this environment, where indiscriminate selling
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is producing huge dislocations to valuations, being able to identify the well-run and well-capitalised companies is key, as these are likely to emerge in a position of relative strength on the other side of this crisis. It is also important to recognise that not all companies are trimming dividends. Many firms are going ahead with payments as planned, while some have even announced increased payouts – a contrarian trend that is particularly notable in China.
Contrarian China
Asian dividend stocks have outperformed the broader region after previous sell-offs. And within greater China, many big companies were steady dividend payers through previous rounds of market turbulence, including firms like chipmaker TSMC (which paid out US$8.4bn in dividends last year), CK Infrastructure, developer Sun Hung Kai Properties, or conglomerate Guangdong Investment.
AROUND THE WORLD IN 80 MINUTES Asian dividend stocks have outperformed in previous market rebounds % outperformance/ underprformance
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-12 -11 -10 -9 -8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33
Months before/ after market peak (zero denotes peak) 1999/02 of MSCI Asia 2007/10 2019/20 Source: Fidelity International, Bloomberg, April 2020. Relative performance Pacific ex Japan High Dividend Yield Index vs. the MSCI Asia Pacific ex Japan Index.
There has been a particular focus among companies from mainland China, specifically those that count the state as a major investor, on increasing dividend payouts in recent years. This follows sustained calls by the government to increase shareholder returns. Recent examples include telecom giant China Mobile; Shenhua Energy, the country’s biggest coal producer; and state-backed property developer China Overseas Land and Investment, or COLI. All three companies recently announced dividend increases. Despite a 9.5% net profit decline, China Mobile slightly increased its full-year dividend payment for 2019 by 3.4%, while assuring investors that it will maintain a stable dividend for the full year of 2020. The management cited shareholder returns as the reason for its decision to boost the payout from last year. Shenhua, sitting on a large cash pile, bumped up its payout ratio to 60% from 40%, while pledging a floor of 50% for 2020 and 2021. And developer COLI proposed a final dividend that lifted its payments for the full year by 13.3% slightly more than the annual increase in net profit. China’s securities regulator has repeatedly called for greater rewards for shareholders in the form of dividend payments, as the government seeks to encourage fundamental investing as part of a drive to reform the stock market. Generally, state-owned enterprises (SOEs) with strong cashflows are more likely to heed the call. Their cash distributions help to boost the coffers of various government units that hold SOE shares, especially in a slowing economy. Big dividend payers tend to include the largest SOEs, which are often financial firms, energy producers and real estate developers with cyclical profits. Many of them still have strong balance sheets this year that allow resilient distributions.
Nevertheless, profit outlooks for Chinese companies in general remain challenging, with the Covid-19 outbreak hurting both exports and domestic consumption. Many other Chinese firms with weak cashflows are cutting or suspending dividends, just like their global peers.
Summary Markets have been moving through an unprecedented crisis and we expect more near-term disruption. It is important to recognise that this shouldn’t alter the long-term outlook for otherwise solid businesses and also not all companies are responding to this pressure in the same way. The key differentiator for most company managements will be the resilience of their cash flows, strength of their balance sheets and sustainability of their dividend policies. This article is an excerpt from a longer Fidelity white paper on dividend cuts. n
IMPORTANT INFORMATION This information is for investment professionals only and should not be relied upon by private investors. Investors should note that the views expressed may no longer be current and may have already been acted upon. Past performance is not a reliable indicator of future returns. Changes in currency exchange rates may affect the value of an investment in overseas markets. References in this article to specific securities should not be interpreted as a recommendation to buy or sell these securities but is included for the purposes of illustration only.
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Ben Edwards, Portfolio Manager at BlackRock
AROUND THE WORLD: A FIXED INCOME PERSPECTIVE Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.
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orporate Bond markets experienced an unprecedented volatility event, in March, in reaction to what will likely be the largest economic shut-down in history and what was the worst month for total returns on record.¹ In response to the spreading Covid-19 virus, developed world governments, instituted unparalleled lockdowns and, to varying degrees and with the support of aggressive central bank policies, sought to replace the lost private sector demand with massive government spending packages.
The lack of perceived moral hazard has emboldened politicians to do more, faster and with little regard for the eventual costs.
The scope of the announced policy action is truly epic, with new rate cuts and bond buying programs effectively clearing the way for governments to borrow any amount to buttress the economy during an economic collapse that unlike the global financial crisis (GFC) is seen as a “no fault” recession. The lack of perceived moral hazard has emboldened politicians to do more, faster and with little regard for the eventual costs – we are all in this together.
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The US, alone, has seen rates cut to zero,² a commitment of the Fed to buy an unlimited amount of treasuries, new programs to purchase corporate bonds (never used during the GFC) and a fiscal expansion that may top $3 trillion* (or around 15% of GDP).³ Here, £200bn of additional BOE bond purchases has seen gilt purchases double that of any period since its 2009 inception and, not coincidentally, enough to absorb the increase in issuance that will fund the governments Covid-19 response.⁴ We witnessed government bond markets oscillate over the month, rallying strongly to reflect the worsening economic outlook, selling off in anticipation of increased supply on fiscal expansion and finally rallying back to incorporate aggressive quantitative easing policies.
As we look at markets today, it seems that the US, UK and, to a lesser extent, Europe have commenced a form of implicit yield curve control, joining Japan, for as long as the virus poses a threat to economic activity. Undoubtedly, one risk is that temporary, crisis era policies have proved extremely difficult to unwind once the crisis is over.
AROUND THE WORLD IN 80 MINUTES RISKS WARNINGS Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time. IMPORTANT INFORMATION This material is for distribution to Professional Clients (as defined by the Financial Conduct Authority or MiFID Rules) only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: + 44 (0)20 7743 3000. Registered in England and Wales No. 2020394. For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Please refer to the Financial Conduct Authority website for a list of authorised activities conducted by BlackRock.
Yield curve control poses challenges for investors. It is unlikely that, without an inflation spike, yields can move much higher, but it is also likely that, without even graver (depression-like) economic outcomes, yields can move much lower. In the short term, risks appear to be alleviated but in the long term the combination of large government spending, with little political constraint and increasing monetary intervention, with little concern for unintended consequences could prove a mix that shifts the investing landscape from the one that has benefited all investors for the last 30 years. We are defensive in our duration positioning, for this reason. With respect to corporate bonds, spreads have recovered strongly from the lows, reflective entirely of policy action.¹ Short term visibility on earnings has evaporated and default risk for weaker companies has increased, markedly. We began the year with conservative exposure to credit risk, holding high levels of cash and gilts, low levels of subordinated financials and record low amounts of sub-investment grade debt. As credit markets weakened, we found incredible opportunities to add to long dated debt from high quality companies, whose operations are resilient to economic downturns and where issuers were happy to pay large premiums to issue bonds to prove access to debt markets in turbulent times. We increased our corporate bond holdings materially, and feel we’ve been able to build positions that should drive performance over the next 12-18month. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or financial product or to adopt any investment strategy. n
* All amounts given in USD. 1 Measured by ICE BofAML Sterling Non-Gilt index 31 March 2020 & 30 April 2020 2 The Federal Reserve, Federal Reserve issues FOMC statement, 15 March 2020 3 The Federal Reserve, Federal Reserve takes additional actions to provide up to $2.3 trillion in loans to support the economy, 9 April 2020 4 Bank of England, Monetary Policy Summary for the special Monetary Policy Committee meeting, 19 March 2020
Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. © 2020 BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, iSHARES, BUILD ON BLACKROCK and SO WHAT DO I DO WITH MY MONEY are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners.
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Toby Nangle, Global Head of Asset Allocation & Head of Multi Asset, EMEA, Columbia Threadneedle
IS IT TIME TO BE GREEDY AS OTHERS ARE FEARFUL?
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he market response to Covid-19 has been astonishing, with sharp falls delivered across equities and corporate bonds. Though developed government debt rallied as markets sought safe havens and priced in even lower-for-longer policy, this was not enough to stop this year delivering the worst first quarter return for a 60/40 basket of equities and bonds since 1960. As markets weakened, so volatility spiked – to record highs as measured by the VIX index – and amid a meaningful rise in cross asset correlations. This is bad news for multi-asset managers that seek to deliver attractive, positive risk-adjusted returns by investing across uncorrelated asset classes.
announced across the globe, whose magnitude and speed of delivery are unlike anything market participants have experienced before. So how have we, as multi-asset managers, sought to think about and react to this rapidly evolving situation? One of Warren Buffet’s more famous mantras struck a chord: that it is “wise to be fearful when others are greedy and greedy when others are fearful”*. Insofar as markets have been pretty fearful of late, we asked ourselves what it might take for us to be more greedy here, and the answer was
Our understanding remains that COVID-19 presents a very serious – but temporary – threat.
But perhaps this is justified; after all, the cost of a “sudden stop” to economic activity, as parts of the global economy simply shut down will undoubtedly be huge in the short term. We may not know for some time what the ultimate economic impact will be, but we are starting to see clues in the data: PMIs across Europe at record lows; new jobless claims in the US dwarfing those seen during the Great Financial Crisis; the list goes on. But alongside the necessary – albeit highly damaging – public health response, a raft of policy support measures have been
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twofold:
Valuations
Every risk has attached to it a price and it is our job to determine a reasonable price for taking on that risk. One area where our investment process has pointed to a growing opportunity is corporate credit, particularly highergrade credit. Having widened by a factor of 3 in fewer weeks,** in late March global investment grade spreads appeared to be compensating investors for default rates that far exceeded our worst-case expectations – and history. Meanwhile, plummeting equity markets left many regions trading at or close to their book values, suggesting asymmetric upside returns should follow. Yes, the shock to both earnings and economic activity in the near term will
AROUND THE WORLDSECTION IN 80 MINUTES HEAD
be huge, but what really matters to the evolution of asset prices is how the world emerges in 2021-22. This brings us to the other reason to be a bit more greedy at this juncture – that unprecedented set of policies put in place by governments and central banks to fill that inevitable “hole” in economic activity. *Source: Wikipedia (https://en.wikiquote.org/wiki/Warren_ Buffett) with CBS interview: https://www.cnbc.com/id/26982338 **Source: Bloomberg and Columbia Threadneedle Investments as at 21 March 2020.
Policy The response from governments and central banks alike has been stunning, eclipsing anything we have seen before in both magnitude and speed of delivery. Fiscal easing this year already exceeds the global response in 2008-9, delivered alongside a huge monetary response, including buying high yield credit in the US and removing issuer limits in Europe, and credit guarantees and other forms of regulatory forbearance. Though these measures cannot cure COVID-19, they probably can keep the piping working in financial markets and address the risk of huge rises in unemployment, which would almost certainly deepen and extend the crisis. We don’t expect a sharp V-shaped recovery, rather a more protracted one, where real GDP only returns to last year’s level towards the end of 2022 or beyond. But we are keen to be exposed those assets poised to benefit from the policy response and that are attractively valued.
Taking quality risk Notwithstanding some short, sharp risk rallies in late March and early April, the risk premia on offer remain elevated across equities and corporate bonds. But so remains uncertainty and our portfolio activity this year-to-date has been focussed on increasing both the quantity and the quality of risk taken. In unconstrained funds we have
allowed overall portfolio volatility to rise, expecting that risk to be compensated with super-normal returns over the next twelve to eighteen months, but we have been concentrating that risk in high quality companies which look best placed to weather the storm. Investment grade credit has been a key beneficiary, an asset class characterised by well-capitalised companies and with direct support from central bank purchases. In equites, we have rotated away from some more cyclical areas like Japan, instead building up a position in high quality global franchises with strong balance sheets, that can deliver growth even in today’s environment. Our understanding remains that Covid-19 presents a very serious – but temporary – threat. While policymakers will not be able to perfectly preserve the global economy, they have demonstrated a determination to prevent this public health crisis morphing into a deeper financial one and, at valuations which still look to be ‘worth the risk’, quality companies should be best placed to participate in the slow recovery that we anticipate. n l columbiathreadneedle.co.uk/ insights
IMPORTANT INFORMATION. For use by Professional and/or Qualified Investors only (not to be used with or passed on to retail clients). Past performance is not a guide to future performance. Your capital is at risk. The value of investments and any income is not guaranteed and can go down as well as up and may be affected by exchange rate fluctuations. This means that an investor may not get back the amount invested. This material is for information only and does not constitute an offer or solicitation of an order to buy or sell any securities or other financial instruments, or to provide investment advice or services. The analysis included in this document has been produced by Columbia Threadneedle Investments for its own investment management activities, may have been acted upon prior to publication and is made available here incidentally. Any opinions expressed are made as at the date of publication but are subject to change without notice and should not be seen as investment advice. Information obtained from external sources is believed to be reliable but its accuracy or completeness cannot be guaranteed. This document includes forward-looking statements, including projections of future economic and financial conditions. None of Columbia Threadneedle Investments, its directors, officers or employees make any representation, warranty, guaranty, or other assurance that any of these forward looking statements will prove to be accurate. The mention of any specific shares or bonds should not be taken as a recommendation to deal. Issued by Threadneedle Asset Management Limited, registered in England and Wales, No. 573204. Registered Office: Cannon Place, 78 Cannon Street, London EC4N 6AG. Authorised and regulated in the UK by the Financial Conduct Authority. Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies. columbiathreadneedle.com
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ESG MAKEOVER FOR INVESTMENT INDUSTRY Growing concern about environment, social and governance issues – allied to a potential flight to quality amid the COVID-19 pandemic look set to accelerate adoption of ESG analysis worldwide. Here Lesley Duncan, Deputy Head of UK Equities at Aberdeen Standard Investments, outlines five ESG trends that she believes are set to reshape investing in coming years. 1. Environmental impact Severe weather phenomena have infused global news coverage and social media over the past year. With climate change forecast to heighten the intensity of weather events further in future, it will become crucial for corporates, institutional investors and asset management companies to answer two key questions: 1) how does my business/ investment impact the environment; and 2) how does the environment impact my business/investment. This will likely accelerate investment into renewable energy, and divestment from firms that deal in fossil fuels. It could also sharpen investors’ focus on the resilience of infrastructure – roads, railways, ports and airports – to climate change, prompting a shift in the composition of investment portfolios.
2. Mainstream integration While interest in ESG investing has developed in recent years, asset managers and institutional investors adopt different approaches. Some purchase ESG data from third-party providers to help inform
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portfolio decision-making, while others hire ESG analysts to engage companies only after they’ve bought them, or outsource ESG capabilities entirely to an external party. But as the narrative shifts from “how much does ESG cost” to “how do we do this”, increasingly asset managers will look to embed ESG capabilities into their own teams to strengthen their pre-investment due diligence. This will drive the mainstreaming of ESG integration over the next two years in recognition of the value it can bring in safeguarding the sustained success of portfolio companies.
3. Data drive We expect to see a meaningful improvement in the quality and consistency of ESG data. We anticipate that stock exchanges and regulators will strengthen disclosure requirements. That will compel corporates to improve the breadth and granularity of information they provide. We also expect to see investors push ESG data providers to improve their coverage of companies and consistency of their methodology. Investor demand will compel them to provide less,
ESG/SRI – BOX TICKING OR REALITY?
but more meaningful data. At the same time we anticipate a shift from quantitative to qualitative data. Investors will want more than basic data points. They will want to understand the sustainability of companies’ strategies and the improvements these firms could make to enhance their value. The ESG data industry has evolved from one fixated on screening and tolerance limits. In future it will need to focus more on performance.
4. Corporate profitability Even now some companies regard ESG as more of a PR activity than a business imperative. That will change as they come to view factors such as corporate disclosure and resilience to climate change as essential to the sustainability of their business. Management teams will need to know, and be able to demonstrate to their boards of directors and investors, how their business models will remain valid in 10 years’ time. To do that they will need to identify and guard against ESG issues that could cause disruption, from data breaches to supplychain risks to discontent among staff that prompts turnover of key personnel and loss of knowhow. The game-changer will be seeing ESG as a means not only to manage risk, but also to drive returns. Firms able to showcase how they safeguard customer data, prioritise environmental sustainability, foster a good staff culture and maintain standards
among their supply chain will resonate with consumers. That will drive profitability, and consequently investor interest.
5. Defined mandates ESG-related questions that institutional investors have directed at their asset management partners traditionally have centred on stock selection and portfolio construction. Increasingly we believe institutions will define ESG parameters that fund houses must adhere to in managing portfolios. We expect to see a marked increase in such mandates over the next few years. While they will feature traditional performance requirements, mandates may also require investment partners to work within a carbon budget; or manage a portfolio of companies that achieve a minimum ESG score; or build a portfolio with quantified environmental or societal impacts. While this is underway in parts of Europe, growing concern about ESG issues among governments and societies more broadly will dictate that it accelerates across Asia and the rest of the world in the next few years. n IMPORTANT INFORMATION: Investment involves risk. The value of investments, and the income from them, can go down as well as up and an investor may get back less than the amount invested. Past performance is not a guide to future results.
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ESG/SRI – BOX TICKING OR REALITY?
THE ADVANTAGES OF ACTIVE SUSTAINABLE INVESTING OVER PASSIVE Andrew Parry, Head of Sustainable Investment at Newton Investment Management explains why he believes in the virtues of active management.
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n times of crisis, you will see a slew of articles highlighting the virtues of active management in providing some protection from plummeting market indices. We believe there is good reason for this; the ability to avoid those industries at the centre of the storm and to have the flexibility to hold cash to provide ‘dry powder’ for reinvestment in unfairly sold-off (but attractively-priced) companies when conditions ease, are both legitimate tools in the active manager’s armoury which are unavailable to their passive counterparts. In our view, it is the duty of active managers to respond dynamically to the current market threats by taking bold and well-researched positions away from the index if necessary; by its very nature, an index can only reflect yesterday’s successes and not tomorrow’s winners. This is especially important in the world of environmental, social and governance (ESG) investing, because the way active
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managers build portfolios can have a material influence on differing relative performance outcomes – even when their defensive characteristics as a whole come to the fore, as we’ve already seen in the current Covid-19
The ability to avoid industries at the centre of the storm and to have the flexibility to hold cash to provide ‘dry powder’ for reinvestment are legitimate tools in the active manager’s armoury
crisis. A truly active manager, however, uses ESG inputs to identify compelling bottomup ideas with strong business models where the construction of the index bears little relation to the allocation of the assets. In the bear market of 2020, we suspect it will be the active ESG managers who will outperform those that prefer to seek virtue in the index construction itself. At Newton, ESG plays an integral role in all of our portfolios. As active managers, we have the opportunity to drive company improvement through engagement. In this current crisis, we would argue that it is more important than ever to invest in active sustainable strategies; by doing so, investors are choosing to invest in a smaller number of well-researched stocks that have been evaluated and selected because of attributes that can help them to deliver the desired outcomes that investors had set out to achieve over the longer term, regardless of any near-term disruption.
to screen out certain sectors, and have been integrating ESG alongside conventional financial analysis for many years, to help pinpoint risks beyond those identified in a company’s financial statements. More recently, we added sustainable investment, which adopts the fundamental principles captured by our integrated ESG approach, and then amplifies the responsible investment requirements by placing greater emphasis on positive societal outcomes. n
THE VALUE OF INVESTMENTS CAN FALL. INVESTORS MAY NOT GET BACK THE AMOUNT INVESTED. INCOME FROM INVESTMENTS MAY VARY AND IS NOT GUARANTEED. For Professional Clients only. This is a financial promotion and is not investment advice. Any views and opinions are those of the investment manager, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes. For further information visit the BNY Mellon Investment Management website. www.bnymellonim.co.uk. MAR000965.
We also believe that it is crucial for companies to clearly define their approach to responsible investment, so that investors can make better-informed decisions over what works best for them. As active investors, we try to avoid any potential confusion by distilling our approach into three broad categories: We offer ethical investments to those wishing
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AN OPPORTUNITY TO RESET TOWARDS SUSTAINABILITY Charlie Thomas, Head of Strategy, Environment and Sustainability
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crisis is always an inflection point, presenting an opportunity to do things differently in the future. Having been at the forefront of public attention until the recent and tragic outbreak of Covid-19, will sustainability issues such as climate change now take a back seat in the next period of economic recovery? Or will this profound disruption to the globe’s economic model force a ‘reset’ in our thinking about how economies and societies can be structured, with a renewed emphasis on resilience and sustainability?
back US fuel efficiency standards for vehicles. However on the positive side, the European Union has made it clear that it wants to align the Covid-19 recovery plans to its ambitious ‘Green Deal’ framework, the appetite to finance clean energy projects remains strong, and China has delayed its phasing out of incentives to buy electric vehicles. Longer-term we can be more positive: After focussing by necessity on the near-term, and crisis management, attention will again turn to the long-term and to stewardship. We believe a renewed focus on resilience (be it corporate, economic, or societal) will likely enhance rather than diminish efforts to meet the growing pressure of sustainability challenges head on.
We believe a renewed focus on resilience will likely enhance rather than diminish efforts to meet the growing pressure of sustainability challenges head on.
With a longstanding experience of offering our clients investments into companies providing the solutions to these challenges, our perspective is not to view this as a black and white issue. In the short term, there will be mixed outcomes. Negative signals include lower carbon prices, the delayed UN Climate Conference (‘COP26’) later this year and President Trump seeking to roll
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We see such a landscape as underpinning multidecade, multi-thematic opportunities for companies and investors alike. From an investment perspective we must remain focussed on this long-term picture while moving quickly to adjust our positioning in the short-term in what is a rapidly changing environment. n
ESG/SRI – BOX TICKING OR REALITY?
IMPORTANT INFORMATION Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the Fund Managers at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. This content is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. It is for informational purposes only and is not investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Issued by Jupiter Asset Management Limited, registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ, United Kingdom, which is authorised and regulated by the Financial Conduct Authority. No part of this content may be reproduced in any manner without the prior permission of JAM.
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Interview with Veronique Chapplow, Investment Director, M&G Investments
M&G POSITIVE IMPACT FUND: IMPACTFUL COMPANIES’ RESPONSE TO COVID-19 What’s impact investing? Why is it relevant to today’s crisis? Impact investing is about investing with the intention to generate positive societal impact alongside a financial return. It is often perceived as a ‘nice to have’, or something which is really only appropriate for the ‘responsibly minded’. However, as Covid-19 severely disrupts markets and society, priorities are being reset, and viewpoints reframed, out of sheer necessity.
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This shift in focus could see impact investing move into the mainstream, as a world in lockdown focuses on the problems we are facing, and the need to find solutions.
Where can impact investing make a difference? The social and human costs of the pandemic have made it obvious that more resources must be deployed in many areas targeted by
ESG/SRI – BOX TICKING OR REALITY? the Sustainable Development Goals (SDGs) as a matter of urgency, not least of which being SDG 3, Good Health and Wellbeing.
The fund invests mainly in company shares and is therefore likely to experience larger price fluctuations than funds that invest in bonds and/or cash. n
This is where we believe impact investing can really make a difference, supporting companies who have at their core the intention to make a positive impact on society and the environment. This is not to say that these are philanthropic organisations – on the contrary, they will be judged on their ability to produce financial returns, aligned with the positive impact they are producing. At times like this, many of them will display a more inclusive version of capitalism by putting in place special measures to support their employees, their customers and the wider community.
Can you give examples of companies that have gone the extra mile? On the healthcare side, at time of writing (20 April), US diagnostics leader Quest has managed to perform more than 940,000 Covid-19 tests since 9 March. Over that short period, it has grown its testing capacity from 10,000 to 50,000 a day, with testing performed across 12 different sites. And solutions are not just confined to healthcare. One of the fund’s holdings, recycled packaging specialist DS Smith, has collaborated with food retailers across Europe to design and produce emergency provision or essential boxes that can be delivered to the doorstep of the most vulnerable.
What happens in a post Covid-19 world? Do we go back to our old ways? Hopefully not. The immediate effects of this pandemic are horrifying, from a human, as well as an economic, point-of-view. But there might be a silver lining to the crisis, reminding us of the importance of a wellfunctioning healthcare system. Moreover, climate change, pollution and inequality will sadly still be with us on the other side of Covid-19. We hope that governments and industries will step up the effort to find solutions to our all too obvious societal challenges, and we are convinced that the commitment of impactful companies to combat them will remain firmly in place. The value and income from the fund’s assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
FOR FINANCIAL ADVISERS ONLY. NOT FOR ONWARD DISTRIBUTION. No other persons should rely on any information contained within. This financial promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Conduct Authority in the UK and provides ISAs and other investment products. The company’s registered office is 10 Fenchurch Avenue, London EC3M 5AG. Registered in England and Wales. Registered Number 90776.
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David Copsey, Vice President – Global Portfolio Solutions (Multi-Asset Investment Team) at Goldman Sachs
A NEW DECADE – WHAT ARE THE CHALLENGES AND OPPORTUNITIES? 1. Diversification could become a challenge The last decade has delivered very strong risk-adjusted returns for balanced portfolios, supported by a combined bull market in developed market equities and bonds, but negative equity/bond correlations. However, extremely low yields on government bonds today decrease their long term return potential, make them potentially more vulnerable to corrections and might limit their ability to provide the same level of diversification going forward. A range of factors, such as structurally lower inflation or extraordinary monetary policy could explain why bond yields might stay low for some time, raising the question how investors can make their portfolios less susceptible to periods of equity weakness.
We believe one way to build more resilient portfolios is through incorporating alternative investment strategies and dynamic risk management. 20
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We believe one way to build more resilient portfolios is through incorporating alternative investment strategies and dynamic risk management. A good example is ‘Trend-Following’, which is a rulesbased dynamic strategy, varying the weighting to assets classes and individual markets across equities, bonds and currency, based on the strength of the price trend in these markets. Unlike longonly strategies, it can generate positive returns when asset prices fall, possibly resulting in low correlation with other risk exposures in the portfolio. We believe a certain allocation can help to improve risk-adjusted returns an offers the potential for positive returns in more challenging markets like the first quarter of 2020, where ‘Trend-Following’ strategies, as measured by the SocGen Trend Index, managed to deliver a positive return.1
NEW DECADE – CHALLENGES & OPPORTUNITIES 2. Accessing secular growth themes may represent a key opportunity While multi-asset investors often think about regional allocations, we believe it is important to consider underlying structural growth themes which play out at the sector and company level. ‘Technological Disruption’ is one example of a structural theme that might result in continued return dispersion, where disruptors could benefit from the rapid growth in areas such as the internet of things, mobile data, electric vehicles or renewable energy. The changes to consumption patterns as a result of ‘Millennials’ becoming the largest cohort of consumers globally, is another example that could shape industries from communications to retail and financial services.
We aim to access these views through thoughtful active security selection.
We aim to access these views through thoughtful active security selection. Our Fundamental Equity and Fixed Income teams apply a rigorous qualitative approach to picking stocks and corporate bonds, analysing secular growth theses in their decision making process. Our quantitative investment team applies a data-driven approach, trying to detect new themes and capture emerging trends more systematically. In our multi-asset portfolios, we blend these approaches to diversify our risk to any one style, aiming for a robust portfolio that can navigate the entire market cycle. n 1: Source GSAM, Morningstar, as of 30/3/2020. Past performance does not guarantee future results, which may vary. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. FOR FINANCIAL INTERMEDIARIES USE ONLY – NOT FOR USE AND/OR DISTRIBUTION TO THE GENERAL PUBLIC.
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Jason Borbora-Sheen
John Stopford
NEW WORLD, NEW OPPORTUNITIES John Stopford and Jason Borbora-Sheen, Portfolio Managers of the Ninety One Diversified Income Fundtake a look at why income sustainability should be the guide for navigating the new world.
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ne notable occurrence during the recent COVID-19 market turmoil was the underperformance of higheryielding assets – both across and within asset classes – which contrasts with typical outperformance in previous bear markets. One of the hardest hit areas was within equities, where the governmentimposed lockdown measures have halted activity – putting severe pressure on companies to cut dividends to preserve cash. This presents a conundrum for income investors, with the reduction of these payouts forcing them to reconsider how they source yield. However, the sell-off has created some of the best risk-adjusted return opportunities – across equities and bonds – that we’ve seen in years. Navigating this new world won’t be easy – and is a long-term journey. We believe the winners and losers will be separated by
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factors of sustainability (of income), which relies on the fundamental quality of the companies in a portfolio.
Dealing with dividends Why are dividends being cut? In an economic crisis of this size, liquidity is key, with companies desperate to preserve cash as a balance sheet buffer. Dividends are often the first port of call, and while this is understandable, it doesn’t bode well for income investors reliant on these payments. But we think there’s a fundamental problem with dividend-hunting, which may have left investors unnecessarily exposed to dividend risk. Indices like the S&P 500 Dividends Aristocrats – a global index of the highest dividend stocks that have maintained their dividends for ten years – is often cited as a good source of quality dividend payers.
NEW DECADE – CHALLENGES & OPPORTUNITIES
However, many companies will often take on additional leverage to maintain those dividends, rather than these distributions being based ‘natural profitability’ generated by robust business models. Unfortunately, this spike in dividend risk facing income investors will continue for many months as companies adapt to the new world. Avoiding over-leveraged companies and any signs of creative accounting is crucial. The focus needs to be on bottom-up fundamental research with a laser focus on a company’s profitability and capital allocation decisions across their supply chains. At Ninety One, we have a concentrated portfolio – tens rather than thousands – because we want to have full understanding of what’s in our portfolios at any given time. The result is a highly differentiated portfolio of stocks compared to traditional dividend indices, which gives us more confidence that the assets we hold will continue to provide the risk-adjusted returns we’re seeking.
particular, we believe many high-quality investment grade companies have been unfairly sold off, creating very attractive riskreward opportunities. We also see selective opportunities in high yield debt, listed infrastructure and across equities. The transformation has been sudden, however the uncertainty has generated new opportunities. A patient approach is crucial; while headline yields may appear attractive, investors must do their research to uncover those long-term opportunities which can offer sustainable incomes and thereby meet their risk-adjusted return goals. n
New opportunities Valuations were transformed after the COVID-19 crash. But, with the unprecedented response from governments and central banks, the amount of liquidity which flushed the market resulted in rapid stabilisation. Now, the yield on our investible universe is the highest we’ve seen in several years. In the aftermath, corporate bonds presented the most attractive opportunity, as the forced liquidation of many portfolios during the sell-off led to underperformance. This led to yields increasing significantly, prompting a rally as markets stabilised. In
All investments carry the risk of capital loss. The value of investments, and any income generated from them, can fall as well as rise and will be affected by changes in interest rates, currency fluctuations, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets in which the investment strategy invests. If any currency differs from the investor’s home currency, returns may increase or decrease as a result of currency fluctuations. Past performance is not a reliable indicator of future results.
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A DIFFERENTIATED SOURCE OF INCOME Shane Hurst, Senior Portfolio Manager, RARE Infrastructure, takes a look at this additional asset class.
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lobal infrastructure stocks may help investors meet their income objectives in a yield-starved world.
With government bond yields near record lows, and in many cases delivering negative real yields, investors have had to look to additional asset classes to meet their income needs. In this environment, many investors are evaluating how to position their portfolios to deliver income from a variety of sources to ensure their income stream is sustainable over time.
Listed infrastructure is a popular income solution for many. This is due to: z a long-term track record of consistently delivering attractive yield z a growing income stream, linked to the asset base of these companies rather than the business cycle z overall portfolio diversification benefits of lower correlation to other equity asset classes.
The Dividend Yield of Infrastructure is at a Premium to Most Asset Classes
As at 31 December 2019. Quarterly since 30 September 2010. S&P Global infrastructure Forward Dividend Yield, Bloomberg SPGTINTR, MSCI World Forward Dividend Yield , MXWO Bloomberg, US Benchmark Bond – 10 year – Yield, Factset Research Systems, United Kingdom Benchmark Bond – 10 Year – Yield, Factset Research Systems, Germany Benchmark
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NEW DECADE – CHALLENGES & OPPORTUNITIES The chart opposite illustrates that global infrastructure has delivered to investors a significantly higher yield than global equities and global bonds. Investors must also consider whether their allocations meet their investment objectives today, as well as the potential to continue meeting those objectives into the future. In this way, infrastructure has an edge as a longterm income solution. Revenues are generally linked to the asset base of these companies, rather than to the ups and downs of economic activity (as is the case with traditional equities and REITs). As a result, the quality of a company’s assets and a detailed assessment of the regulation or contracts governing them needs to be front and centre to a portfolio manager’s process. This is what delivers stable cash flow and greater capital stability. As demonstrated in the chart below, a growing asset base drives growth in dividend yields.
The Dividend Yield of Infrastructure is at a Premium to Most Asset Classes
Source: RARE calculations annually as of 30 June 2019. Past performance is no guarantee of future results. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.
Lastly, investors have chosen listed infrastructure due to the strong portfolio diversification benefits. Data from eVestment shows that over the last 7 years the median listed infrastructure manager delivered strong total returns with a correlation of monthly returns of only 0.71 to Global Equities compared with 0.95 for the S&P 500 for a US dollar investor.
The Bottom Line Investors have had to look beyond traditional sources of income; while global equities have the ability to provide attractive yields relative to bonds, revenues and ultimately dividends are ultimately linked to economic activity. Listed infrastructure may play an important role in an investors’ portfolios, providing a differentiated source of income linked to the asset base, whilst seeking to deliver total returns with a lower correlation to traditional equities. n
IMPORTANT INFORMATION All investments involve risk, including possible loss of principal. The value of investments and the income from them can go down as well as up and investors may not get back the amounts originally invested, and can be affected by changes in interest rates, in exchange rates, general market conditions, political, social and economic developments and other variable factors. Investment involves risks including but not limited to, possible delays in payments and loss of income or capital. Neither Legg Mason nor any of its affiliates guarantees any rate of return or the return of capital invested. Equity securities are subject to price fluctuation and possible loss of principal. Fixed-income securities involve interest rate, credit, inflation and reinvestment risks; and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Past performance is no guarantee of future results. The opinions and views expressed herein are not intended to be relied upon as a prediction or forecast of actual future events or performance, guarantee of future results, recommendations or advice. Statements made in this material are not intended as buy or sell recommendations of any securities. In the UK this financial promotion is issued by Legg Mason Investments (Europe) Limited, registered office 201 Bishopsgate, London, EC2M 3AB. Registered in England and Wales, Company No. 1732037. Authorised and regulated by the UK Financial Conduct Authority.
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WILL A NEW DECADE BRING AN OPPORTUNITY TO CHALLENGE? Andrzej Pioch: Fund Manager on the Multi-Index range.
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n recent years, we have seen a transformation in many investment portfolios as the case for diversifying assets has become abundantly clear. However, in the pursuit of wellbalanced investments, we believe many investors may be inadvertently exposing themselves to another concentration risk. The Retail Distribution Review¹ led to a surge in appetite for index strategies as a cost-effective welldiversified solution, with the FTSE All World or MSCI ACWI offering access to over 2000 constituents.
The unintended consequence for global indices was staggering. The US started the previous decade with a weight of just under 40% in the global equity index MSCI ACWI, but today it sits at a whopping 58% and is five times larger than all 25 emerging markets combined.3
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In periods such as the first half of 2018, the 'big five' can explain nearly 90% of the S&P 500’s returns. However, six months later the same companies were behind one third of the equity sell-off in the last quarter of 2018.⁵
In this current volatility, technology companies have shown resilience and fared well.
But markets never stand still or rise in parallel. Since then US equities raced ahead of all other regions, delivering a 10-year cumulative return of over 300%, far above the 110% average for the UK, Europe, Japan, Asia-Pacific and emerging markets.²
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As the US dominates the global index, technology stocks in turn dominate the US. At the peak of the dot-com bubble, top five US stocks in the global index made up nearly 19% of the S&P 500. Today’s ’big five’ – Microsoft, Apple, Amazon, Alphabet, and Facebook – add up to nearly a quarter of that same index.⁴
Having a large US and technology exposure may not cause widespread investor concern, and may actually seem appealing to many. A recent Citi Bank survey showed that over 40% of investors want to hold US equities over the next 10 year⁶. And in this current volatility, technology companies have shown resilience and fared well as the world relies on their services to work, buy vital goods, and connect with loved ones amid COVID-19 related lockdowns. However, in this ever-changing world, a new decade may welcome new stock winners. Will developments, events and innovations over the next 10 years challenge
NEW DECADE – CHALLENGES & OPPORTUNITIES
the dominance of US tech stocks in global equity indices? Which companies will come out on top in 2030? The answers are yet unknown, which is why we believe in the importance of using a balanced mix of regional equity indices to avoid excessive country concentration or stock-specific risk. We may not have a crystal ball, but history has shown us that spreading risk could lead to stronger returns. n
Views expressed are of Legal & General Investment Management Limited as at 23 April 2020. Forward-looking statements are, by their nature, subject to significant risks and uncertainties and are based on internal forecasts and assumptions and should not be relied upon. There is no guarantee that any forecasts made will come to pass. Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. 1 FCA, December 2012. 2 MSCI, December 2019. 3 MSCI, April 2020. 4 S&P, April 2020. 5 Bloomberg, December 2018. 6 Citi, April 2020.
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A SUCCESSFUL RSMR CONFERENCE 2019 RUDDING PARK, HARROGATE We've been hosting conferences since 2014 and take great pride in creating authentic and informative experiences for the advisory community. Seriously enlightening presentations, engaging speakers, a great buzz and lots of smiling faces. We also present our 'R Awards'. Our Next event is planned for Wednesday 18 November 2020 and it is free to advisers and qualifies for CPD. l Check out our dedicated events website for registration at rsmrevents.co.uk
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Sunil Krishnan, Head of Multi-asset Funds at Aviva Investors
RISK – WHERE ARE TODAY’S 'SAFE HAVENS'?
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n normal market conditions, fund managers look to construct portfolios able to navigate the range of outcomes that might reasonably be expected. There are typically three options to manage risk:
1. Increase allocations to government bonds; 2. Reduce investments in growth-sensitive assets, such as equities or high-yield credit; 3. Look for assets in demand when portfolios shrink (including currencies like the US dollar or Japanese yen).
Government bonds Government bonds tend to increase in value when economic weakness causes central banks to drive down interest rates on cash and form an important building block in many portfolios. We came into 2020 with some concerns about them being very popular, and therefore highly valued. Initially, this did not stop them performing their usual risk-off role as equities lost ground in February. However, by the second week of March, all bonds began to behave unusually. Government bonds are normally one of the most liquid markets, but it transpired that many bondholders had borrowed to buy them. As uncertainty increased, they were forced to sell both bonds and equities which created
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an opportunity to buy unwanted Treasuries. Nevertheless, market moves in March illustrate the need for a multi-faceted approach rather than a single source of protection.
Growth assets It can be tempting to rely on large sales of equities when trouble arises, as a strategy for protecting wealth. However, this is hard to achieve. First, by the time the headlines turn gloomy, a sale is often too late. Second, timing a re-entry to growth assets can be a huge challenge. We prefer to take a more strategic approach. In our uncorrelated allocation, we look for assets that can deliver strong returns but preserve capital in difficult times.
Currency behaviour The US dollar and Japanese yen are traditional safe havens, perhaps because they are often borrowed by companies and investors during good times. Our own analysis leads us to believe that strategically allowing a degree of unhedged exposure to these currencies may improve overall risk adjusted returns. Running in to 2020, the US dollar had been very strong,' in large part driven by the US economy’s domestic strength which insulates it somewhat from global trade and manufacturing woes. In contrast, the Japanese yen had been
RISK – WHERE ARE TODAY’S 'SAFE HAVENS'?
weak. During the March sell-off, markets largely conformed to the strategic pattern. The dollar once again strengthened markedly, rising five per cent in the first three weeks of March (source: Bloomberg, as at 25 March 2020) as investors bought it as a safe-haven asset. Yen appreciation, and weakness in euros and Australian dollars, also provided a degree of protection.
Market moves in March illustrate the need for a multifaceted approach. How should investors now view diversification in multi-asset portfolios? Recent events have illustrated that having a multi-faceted approach to managing portfolio risk can allow a portfolio manager to navigate volatility, spot opportunities, and strike the right balance between responding to markets and taking a long-term view. n
¹ Anil Panchal, 'USD/CAD bounces off monthly lows amid broad US dollar strength,' FX Street, 20 February 2020. https://www. fxstreet.com/news/usd-cad-bouncesoff-monthly-lows-amid-broad-us-dollarstrength-202002200401 IMPORTANT INFORMATION Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (AIGSL). Unless stated otherwise any views and opinions are those of Aviva Investors. They should not be viewed as indicating any guarantee of return from an investment managed by Aviva Investors nor as advice of any naturePast performance is not a guide to the future. The value of an investment and any income from it may go down as well as up and the investor may not get back the original amount invested. This material is not a recommendation to sell or purchase any investment. In the UK & Europe this material has been prepared and issued by AIGSL, registered in England No.1151805. Registered Office: St. Helen’s, 1 Undershaft, London, EC3P 3DQ. Authorised and regulated in the UK by the Financial Conduct Authority. RA20/0591/30042021
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DILEMMAS FOR SECURING INCOME AS DIVIDENDS COME UNDER PRESSURE Georgina Taylor, Multi Asset Fund Manager at Invesco explains the importance of diversifying income sources.
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ncome has been thrown firmly into the spotlight recently with the news that banks are being advised to cancel all dividend payments and buybacks.
Hopefully this is a temporary suspension of an important component of equity income, representing around 15% of FTSE 100 dividends last year. Markets have priced in a pretty dramatic cut in dividends, with the FTSE 100 December 2020 dividend future falling nearly 45% during March.
only expected to contribute 0.08% to our income target, which currently equates to roughly 4.1% over one year. Given the flexibility of the strategy we can replace that with other sources if dividends are affected further.
Figure 1. Percentage contribution to income across asset types in 2019
Having access to a broader range of options to generate income can help diversify the income component of a portfolio. For the Invesco Global Targeted Income Strategy to meet its gross income target of 3-month LIBOR plus 3.5% p.a. we look at a wide range of opportunities. For 2019, the income breakdown was as per Figure 1. Note that equity dividends were already the smallest component of our overall income generation in 2019, and we have reduced that further in 2020. As at 24 March 2020, equity dividends were
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Source: Invesco, as at 31 December 2019.
RISK – WHERE ARE TODAY’S 'SAFE HAVENS'?
Important information This article is for Professional Clients only and is not for consumer use. All data as at 31/03/2020, sourced from Invesco unless otherwise stated.
How are we generating income?
Investment risks
For income generation we prefer credit to equity given the policy measures which in Europe, for example, are supporting investment grade credit markets.
The value of investments and any income
In addition, ideas such as buying the Japanese Yen, buying US government bonds versus selling European bonds and buying volatility have all been very helpful during the equity and credit market falls. Currency continues to be the most important income generator alongside selective bond positions, such as Mexican bonds which have held up well year-to-date and continue to offer an attractive income for investors.
will fluctuate (this may partly be the result of exchange-rate fluctuations) and investors may not get back the full amount invested. The strategy uses derivatives (complex instruments) for investment purposes, which may result in a portfolio being significantly leveraged and may result in large fluctuations in value. The strategy may hold debt instruments which are of lower credit quality which may result in large fluctuations in value. As a portion of the strategy may be exposed to less developed countries,
More information For more information on this strategy, please visit invesco.co.uk/gti n
you should be prepared to accept large fluctuations in value.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice. This article is marketing material and is not intended as a recommendation to invest in any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication. The information provided is for illustrative purposes only, it should not be relied upon as recommendations to buy or sell securities. Further information on our products is available on the Invesco website. Invesco Asset Management Limited, Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UK. Authorised and regulated by the Financial Conduct Authority.
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COUPONS OVER DIVIDENDS
Jenna Bernard, Co-Head of Strategic Fixed Income at Janus Henderson Investors. Janus Henderson
L
ike a colossal tsunami inundating the globe, the coronavirus pandemic caused massive turmoil in the global financial markets in March, which also had to endure an oil price shock. Given the lockdowns and social distancing policies to avert the humanitarian crisis, the global economy then went into a downward spiral, raising fears of a severe recession.
A wartime response In the face of the severe disruption to activity and the world economy, governments and central banks delivered an impressive array of policies and easing measures to combat the impact of the virus on their economies and the markets. A significant measure came from The US Federal Reserve (Fed) with the announcement that, for the first time, the Fed would buy corporate bonds in both the primary and secondary markets. The size of this programme (US$750bn) and the extension of eligibility to recent and prospective fallen angels in the high yield market, helped greatly to support corporate bond markets over the ensuing weeks.
A semblance of stability returned to markets The sheer size, scale and the breadth of the asset classes, which central banks promised
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to purchase, proved positive for risk assets in general. With governments and central banks signaling that they wish to minimise corporate defaults, panic selling and deleveragings slowed down dramatically. The investment grade corporate bond markets soon reopened in style. Many multi national companies, perceived to have low default risks, managed to raise the capital needed to survive over the next few months — though the new bond issues came at very high concession pricings. The high yield market also reopened a little later, albeit slowly and mostly in the mature US market.
Quality growth businesses will be able to continue to raise bridge financing in the capital markets to survive. Credit became the place to be The asset allocation clock shifted in favour of credit as equity holders took the pain of dividend cuts and demanded companies
TY I U
CR E
DIT
EQ
RISK – WHERE ARE TODAY’S 'SAFE HAVENS'?
focus on liquidity and their balance sheets. It is worth noting that corporate bonds rank senior to equities and must pay their coupons or default. While they may be more illiquid than equities when trading, they are fundamentally less risky. At this stage of the current crisis, as well as the business cycle, this presented a plethora of opportunities for credit investors. With more companies raising funds through new bond issues, which came at very wide spreads, credit spreads became extremely attractive reaching levels only seen once in a decade. Going forward, there will obviously be winners and losers. Some industries will be supported by their national governments (such as airlines), but quality growth businesses will be able to continue to raise bridge financing in the capital markets to survive. The losers we believe are likely to be the smaller cap, more levered, value businesses. Once the pandemic is over, we will emerge into a very low interest rate world where the need for income will once again be the focal point, making it imperative to use the current opportunities to lock in a decent income stream. We were able to take advantage of the unprecedented valuations to lock in income for our clients from the types of companies that fit our ‘sensible income’ style — namely large cap, non cyclical, growth companies, which have a reason to exist. n
IMPORTANT INFORMATION This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution. Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and investors may not get back the amount originally invested. There is no assurance the stated objective(s) will be met. Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell, purchase or hold any investment. There is no assurance that the investment process will consistently lead to successful investing. Any risk management process discussed includes an effort to monitor and manage risk which should not be confused with and does not imply low risk or the ability to control certain risk factors. Various account minimums or other eligibility qualifications apply depending on the investment strategy, vehicle or investor jurisdiction. We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes. Issued in Europe by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). Investment management services may be provided together with participating affiliates in other regions. Janus Henderson, Janus, Henderson, Perkins, Intech, Alphagen, VelocityShares, Knowledge. Shared and Knowledge Labs are trademarks of Janus Henderson Group plc or one of its subsidiaries. © JANUS HENDERSON GROUP PLC.
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Yoram Lustig is the head of Multi-Asset Solutions, EMEA
RISK – WHERE ARE TODAY’S 'SAFE HAVENS'?
A
s government bond yields have fallen over the last decade, investors increasingly questioned how to effectively diversify equity risk. Only to be reemphasised by the experience of the 2020 corona crisis, three groups of safe havens have not disappointed.
1. Government bonds The traditional diversifier of equity risk is duration risk. Bonds issued by trusted governments – the US, Germany, the UK – with long duration offering enough
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fire power to offset part of stock markets’ drawdowns, have been and are still a haven. During flights-to-quality, investors dump risk assets, rushing to the safety of high-quality government bonds. Low yields mean safety has become much more expensive than it used to be – instead of earning 4% on bonds, investors earn less than 1% or, indeed, pay when yields are negative. However, yields could go lower or turn negative, sending bond prices higher.
2. Currencies Currencies have a pecking order, from safer to riskier. The US dollar, Japanese yen and
Swiss franc are often perceived to be safe and tend to appreciate when risk assets depreciate. The British pound – in the past a haven – has become a risky currency, partially due to Brexit uncertainty and partially due to the UK’s diminished economic prowess on the global stage. However, with quantitative easing of central banks, especially of the US Federal Reserve, on the course of printing unprecedented amounts of money, the relative future value of currencies might change.
3. Defensive strategies If there is one constant in our world, it is change. Financial markets are ever evolving, and investors must use creativity to adapt. One dilemma facing investors seeking safety is costs. The trick is identifying havens that are not only not an expense but also a source of modest returns in good times and strong returns in bad times, when risk assets fall. One solution is systematic or active strategies, aiming to do just that. For example, buying low-volatility stocks and removing market exposure, buying defensive options at reasonable costs or using algorithm that sells stocks when their volatility jumps and buys them when it falls.
FOR PROFESSIONAL CLIENTS ONLY. NOT FOR FURTHER DISTRIBUTION. IMPORTANT INFORMATION: Past performance is not a reliable indicator of future performance. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. Issued by T. Rowe Price International Ltd, 60 Queen Victoria Street, London, EC4N 4TZ which is authorised and regulated by the UK Financial Conduct Authority. © 2019 T. Rowe Price. All rights reserved. T. ROWE PRICE, INVEST WITH CONFIDENCE, and the Bighorn Sheep design are, collectively and/or apart, trademarks of T. Rowe Price Group, Inc. 201905-857023
The future has departed from its trajectory in 2020. Investors need to recalculate their course. Splitting portfolios into growth and defensive assets and using a diversified blend of traditional and non-traditional safe havens in the defensive part is our preferred approach to face the new future. n
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IS THE TIDE TURNING TO VALUE? Raheel Altaf, manager of the Artemis Global Emerging Markets Fund, discusses value as an investment style. For a number of years the environment has supported ‘growth’ stocks over ‘value’ stocks. Is the tide starting to turn? Indeed, the combination of historically low interest rates, a protracted but weak economic recovery and a number of structural trends have supported growth stocks above value stocks over the last decade. Investors’ risk aversion has been another important factor. At the time of writing, the
tide is yet to turn. Rather, it has become more extreme, which indicates that we are close to an end point: growth has outperformed value by 15% year to date, even after multi-year outperformance. This sharp de-rating is not reflective of the relative fundamentals of value stocks. As a result, dispersions in valuations are at extreme levels in many markets around the world (Chart 1). History suggests this will not carry on and a subsequent reversion is likely to mean that value stocks offer an attractive opportunity to investors.
Time for a comeback? Rolling 10 year value vs. growth performance 80%
60%
Emerging markets
40%
20%
0%
-20%
-40% 1985
Developed markets
1990
1995
Source: FactSet, as at 31 March 2020.
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2000
2005
2010
2015
2020
The early stages of recovery may be volatile, but the optimism expressed in highgrowth stocks’ valuations suggests that there are plenty of opportunities in overlooked value stocks.
What economic characteristics will allow value to regain ground lost to growth over recent years? The value strategy is often cyclical in nature, outperforming in periods of economic recovery and underperforming during periods of stress. But we would note that this hasn’t always been the case. As an example, value strategies performed significantly better after the bursting of the dot-com bubble. The general perception that value stocks perform well in an improving or accelerating economy is related to a number of lowly valued companies being found in more economically sensitive (cyclical) sectors. However, we currently find many companies offering reasonable or cheap valuations in more defensive parts of the market, such as telecoms or utilities. Given some value stocks (particularly financials and commodities) tend to benefit from reflation, their performance has become more closely linked to bond yields. With only fleeting signs of bond yields rising in the last five years, this has held performance back for these sectors. We would caution investors on setting too much store on these relationships. Looking back over more than 100 years, value
strategies have delivered strong performance across different environments in the market. A better indicator of the future performance of value is more likely to come from mean reversion, with value stocks much cheaper than they have been historically.
What other alternatives should investors consider – momentum/ pragmatism/factor based investing? We prefer to use a range of valuation metrics when assessing value. Earnings per share can be manipulated, cashflows less so, so we tend to look at these. Price to earnings ratios can seem cheap for companies with peak profit margins or with high levels of debt. So enterprise value metrics, which include a company’s debt obligations, are helpful to give a broader picture. A blended approach, combining different metrics, helps avoid the pitfalls of using an individual metric. We try to avoid ‘value traps’ by using sentiment and momentum measures. Share prices stabilising or improving often mark the bottom and are helpful with timing. Combining momentum measures with valuation measures tends to work well. Beyond these measures, we also assess fundamentals carefully. The strength of a company’s balance sheet is particularly important in times of stress. A company may be cheap but it needs to be able to weather a difficult environment in order to deliver better growth in the future. n
FOR INVESTMENT PROFESSIONALS ONLY. NOT FOR USE WITH OR BY PRIVATE INVESTORS. The fund is a sub-fund of Artemis Investment Funds ICVC. For further information, visit www.artemisfunds.com/ oeic. Third parties (including FTSE and Morningstar) whose data may be included in this document do not accept any liability for errors or omissions. For information, visit www. artemisfunds.com/third-partydata. Any research and analysis in this communication has been obtained by Artemis for its own use. Although this communication is based on sources of information that Artemis believes to be reliable, no guarantee is given as to its accuracy or completeness. Any forward-looking statements are based on Artemis’ current expectations and projections and are subject to change without notice. Issued by Artemis Fund Managers Ltd which is authorised and regulated by the Financial Conduct Authority
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GROWTH STILL WINNING James Budden, Director of Marketing and Distribution at Baillie Gifford gives us his take on the value versus growth debate
T
he return of value investing was announced enthusiastically last year by its many fans. However, by the end of 2019, its arrival was exposed as little more than fake news, a view strengthened by the current climate.
Although value indices have lagged growth equivalents since the 2008 financial crisis, investors who favour that approach cling to hope that the cycle will change and the mean will revert. Of course, history provides many lessons, but it does not tend to repeat itself. So, it is perhaps just easier to look at the past rather than trying to predict the future. During the last decade, traditional value areas of the stock market such as retail, financials, industrials, pharma and energy have been turned upside down by technology-driven entrants. Disruption has become mainstream and the corporate transformation may be even more dramatic than we realise. Value stocks are very cheap, largely for very good reasons. Business models are broken, and long-term investment has been replaced by short-term share price therapy. At some stage, growth may falter and pause for breath but may not mean that value regenerates. The gap will close because both get cheaper as markets correct. Growth will move on again and value will remain cheap. Again, this trend appears to be accelerating during the coronavirus crisis. In truth, we may be better off dispensing with the idea of value versus growth and stop concerning ourselves with the cycles that are supposed to see their respective dominance leapfrog each other. Perhaps it is more a case of new economy versus old economy. What history does tell us is that markets are driven
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by a small group of very big winners and that a lot of companies simply don’t contribute much, if at all, to overall wealth creation. So where does that leave value investing, with its classic margin of safety and its reliance on price-to-earnings ratios? The big winners so far this century have been major internet platforms in the US and China. Their exponential growth continues and their returns show no signs of diminishing as they get bigger. The labels of growth and value give comfort to those trying to define market movements and bring some certainty to the uncertainty and unpredictability of investing. Some fund managers will have the skill or the luck to spot a bargain and so create value for their investors. Others spend their time trying to find the big winners. This approach is asymmetric. Failure can cost up to 100 per cent, but value added can be many times that. These are the true growth managers and news of their demise is certainly premature, if not fake. n
FOR FINANCIAL ADVISERS ONLY, NOT RETAIL INVESTORS. AS WITH ANY INVESTMENT, YOUR CLIENTS’ CAPITAL IS AT RISK. This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are those of James Budden, are not statements of fact, and should not be considered as advice or a recommendation to buy, sell or hold a particular investment. Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). The trust is listed on the London Stock Exchange and is not authorised or regulated by the Financial Conduct Authority.
INVESTMENT STYLE – THE RISE OF THE SECTION UNDERDOG? HEAD
Perhaps it is more a case of new economy versus old economy.
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Dan Green, Co-Manager, Franklin UK Smaller Companies Fund
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INVESTMENT STYLE – THE RISE OF THE UNDERDOG?
W
hen considering investing styles, we are agnostic in our stylistic approach to running the Franklin UK Smaller Companies Fund. Fundamentally, we are looking for companies that display certain characteristics, rather than just screening for stocks that would fall into the “value” bucket, such as companies trading below book value. We look for companies with business models that we understand, dominant market positions or growing market share, strong financial metrics with regards to profitability, return on capital employed and cash conversion, appropriate capital structures and strong management teams. Naturally, these businesses are very rarely on valuations that would make them attractive to value investors. I also believe there are inherent flaws in following a pure value investing philosophy. Traditional value has underperformed many other styles over recent years and offered no protection in the recent market sell off, performing worse than the market average. This is because businesses which are deemed to be of value generally have some issues which mean they trade on a below market rating; they may have an inappropriate capital structure, be in a structurally declining industry or not be in control of their own destiny, for example heavily reliant on
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commodity prices. This style has also meant missing out on the gains in recent years and then falling more in the recent sell off, a loselose situation. As is so often the case, Warren Buffet explained this in a straightforward manner in his 1989 annual letter to Berkshire Hathaway shareholders where he wrote, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Value investors may be attracted by a bargain price, but if that business has structural challenges, that bargain price may not prove to be such a steal after all. In our approach to investing, valuation is absolutely paramount, and we look for a dislocation between the price being offered and the underlying value of a business. We often find our best investment ideas are when excellent businesses encounter short-term, but solvable challenges. Many businesses trading on “value” multiples may be facing challenges which are more difficult to solve. It’s my opinion that at some point and during a certain period value investing will outperform other styles in the market. Could that be soon, with many businesses affected by the COVID-19 pandemic trading on depressed multiples? Possibly. However, I believe the risk profile is heightened with these businesses, first you must be confident on their survival, but also take a view on a lot of unknown scenarios which may result in a binary outcome. It may be better to look for long-term winners whose value will compound over time, rather than holding challenged businesses waiting for the market to revalue them. n
We often find our best investment ideas are when excellent businesses encounter shortterm, but solvable challenges. © Copyright 2020. Franklin Templeton. All rights reserved. This document is intended to be of general interest only and does not constitute professional advice. Opinions expressed are the author’s at publication date and they are subject to change without prior notice. Given the rapidly changing market environment, Franklin Templeton disclaim responsibility for updating this material. Any research and analysis contained in this document has been procured by Franklin Templeton for its own purposes and is provided to you only incidentally. Investments entail risks. The value of investments and any income received from them can go down as well as up, and investors may not get back the full amount invested. Past performance is not an indicator, nor a guarantee of future performance. For more details on risks please read the Franklin Templeton Funds Prospectus available on our website. Issued by Franklin Templeton Investment Management Limited (FTIML), Cannon Place, 78 Cannon Street, London EC4N 6HL. FTIML is authorised and regulated by the Financial Conduct Authority. For additional information, please visit our website www.franklintempleton.co.uk.
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Johanna Kyrklund, Chief Investment Officer and Global Head of Multi-Asset Investment
IT PAYS TO BE PATIENT
A
s lockdown continues for millions of us across the world, we all know we must be patient. Good things come to those that wait, as they say. This seems to me to be true not only from a personal viewpoint, but also from an investment one at the moment. Since this crisis broke it’s been difficult to focus on anything but the short term amid daily news flow and extreme market turbulence. The recent actions of governments and central banks have allowed us the space to refocus, lift our heads and look further down the road to the six to 12 months that lie ahead.
In the longer term, with the massive stimulus measures that have been announced, there is also the risk of a significant build-up of public debt. This is an outcome which is likely to lead to even more financial repression, whereby interest rates are kept below the level of inflation. Although stock market indices, particularly the US S&P500, suggest that there is still too much optimism around corporate earnings, we continue to see a two-tier market. So-called “quality” and “growth” stocks are trading at expensive levels and “value” stocks look extremely cheap.
There has been much talk of whether a potential economic recovery will look like a V, a U, an L or a W
There has been much talk of whether a potential economic recovery will look like a V, a U, an L or a W. My view is that expectations of a V-shaped recovery are too optimistic. It looks likely that some form of social restrictions is likely to persist into the third quarter and that the scale of this demand shock will cast a shadow over growth for the foreseeable future. Covid-19 only serves to reinforce our concerns that growth will be weaker, rather than stronger.
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We are yet to take a more positive view on currencies or shares that are cyclical. Ultimately, we decided that it was still too early to expect their comeback because the economic outlook remains cloudy. Signs that the coronavirus infection rate may be flattening are welcome news in this context, but the only way of containing the virus is through reduced levels of economic activity. Just as we need to be patient about our working and living arrangements, we believe that some patience is still needed before significantly increasing our exposure to those more economically-sensitive areas. n
INVESTMENT STYLE – THE RISE OF THE UNDERDOG?
IMPORTANT INFORMATION Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Schroders has expressed its own views and opinions which may change. This information is not an offer, solicitation or recommendation to buy or sell any financial instrument or to adopt any investment strategy. Nothing in this material should be construed as advice or a recommendation to buy or sell. Reliance should not be placed on any views or information in the material when taking individual investment and/or strategic decisions. No responsibility can be accepted for error of fact or opinion. Issued by Schroder Investment Management Limited, 1 London Wall Place, London EC2Y 5AU, registered No. 1893220, who is authorised and regulated by the Financial Conduct Authority. UK000724.
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