06 August 2020
By Mark Van Moorsel, Co-Fund Manager DMS Verbatim Portfolio 5 Income Fund
Regular readers will be familiar with our thematic investment philosophy, through which we seek to identify the disrupters and growth companies of the next decade. We look for companies which can outperform the wave of an economic cycle, underpinned by our five themes: ageing, automation, climate change, digitalisation and evolving consumption.
However, a once-in-a-generation pandemic has shocked the system in the broadest sense. Cue an unprecedented financial stimulus which, like quantitative easing in 2008, strives to stabilise the global economy, but this time, there is a noteworthy difference. With lessons learned from the global financial crisis, 2020’s funding efforts are not indiscriminate. This is not a liquidity surge that will re-float all ships; this is a life raft to those who have a viable business model.
Our rigorous stock review process ensures we avoid the ailing franchises whose share prices – and indeed very survival – are likely to yo-yo to a will-they-won’t-they near-term guessing game. Instead, we are invested for the long term. Our thematic discipline is rooted in fundamental analysis – of industry structures, corporate stewardship and strategy – plus now more than ever, engagements with management teams.
This distils our investment universe to fewer than 1,000 stocks – companies which are not just thematic but are winners within their themes. While we should assume a period of greater volatility ahead, investors are right to ask if their portfolios are likely to hold up to the new shape of a post-COVID world. We expect our thematic approach to continue to provide the optimum framework for weathering the storm and our conviction in many of the stocks in our portfolios to strengthen.
Our digitalisation theme has been an obvious beneficiary as more of the population migrate to remote working, streaming entertainment and on-line services. There is also opportunity within automation; warehousing and logistics are reacting to the near-term shift in consumer demands but sourcing across a global supply chain that may not be as reliable as it once was. We own companies in our automation theme who will provide long-term solutions both to boost efficiencies and improve health, safety and environment in the workplace. Schneider, with its sector-leading ESG credentials, is at the forefront of smart infrastructure, the adoption of which will speed the world’s transition to decarbonisation. Daikin, which is held widely across a number of our portfolios, is a long-term beneficiary to climate change adaptation and also at the forefront of air filtration: a largely ignored component of their global business which is likely to become a mainstream competitive advantage versus peers. Whilst robotics will undoubtedly become more prevalent in the workplace, the industry has been fragmented and competitive. However, by tapping into the supply chain through Keyence, the world leader in vision systems, shareholders have been able to benefit from double-digit annual growth rates. We see no reason for this to change. The inevitable widescale adoption of robots and cobots who use more vision sensors means that growth rates are likely to accelerate further.
Digitalisation is not the only theme that we believe will be more valuable in the new normal. We see further opportunities in our four other mega investment themes: automation, climate change, ageing and evolving consumption. The experience of a pandemic-scarred workforce is likely to accelerate our automating world, while calls for the post-COVID world to solidify its commitments to a sustainable future are intensifying. With few exceptions, the post-COVID environment will realise both a faster and broader adoption of our themes. Through identifying the leaders within each theme we believe our global equity portfolio will not just survive the pandemic, but will be in a position to thrive.
The value of investments and any income from them can go down as well as up and is not guaranteed. Your clients could get back less than they originally invested. Past performance is not a guide to future performance. The portfolios' investments are subject to normal fluctuations and other risks inherent when investing in securities. Verbatim Asset Management has taken due care and attention in preparing this document, which is solely for the use of professional advisers. Verbatim cannot be held responsible for any inaccuracies arising out of information detailed within and will not accept liability for any loss arising out of or in connection with its use. The contents of this article should not be construed as advice and is for information only. Individual stock selection should only be performed by suitably qualified advisers.