Mark Dampier: Schroders fund makes the world your shop window
Saturday 01 May 2010
Globalisation has changed many aspects of our lives including the way we consider investments. With companies increasingly competing on an international stage it is becoming less relevant where they are based, so setting geographical boundaries is not necessarily helpful to investors. Instead, a global perspective is now important to understand businesses and to discover where the best opportunities lie.
Similarly, investors focusing solely on the performance of a particular market index risk missing profitable underlying trends. For example, the US Dow Jones made virtually no ground between 1966 and 1982, but some firms prospered during this period and enjoyed strong share price gains. To capture these less visible trends we need to look for key structural changes that have a significant impact on companies' operations. Such changes are often long term and are frequently ignored by investors until they become more obvious, by which time it's too late because share prices have already risen.
A fund aiming to identify and capture these important changes is the new Schroder Global Alpha Plus, which has the freedom to shop around for the best 30 companies from all over the world. It would be wrong to think of this fund as simply a thematic investment though. It examines how wider trends and developments will affect companies, but the managers will also look for quality businesses, and only invest at an attractive price.
The fund's approach of a small number of "best ideas" does increase risk, but it also means every holding should have a big impact. So the fund certainly has the potential to deliver excellent long-term returns if the fund managers, Virginie Maisonneuve and Jonathan Armitage, make the right decisions. Together they have over 40 years' experience and an extensive knowledge of company management, having visited thousands of companies over their careers. Virginie is a French native and can speak not only fluent English but also Mandarin, quite an advantage when meeting Chinese businesses.
One important theme the managers consider is climate change. Whatever your personal views, it seems the increasing political consensus will have far-reaching consequences. Virginie Maisonneuve believes that to meet emissions targets $20 trillion worth of investment in energy infrastructure is required by 2030. The impact of this is poorly understood and will have considerable consequences for some companies, and create significant opportunities for others.
Tied in closely with this theme is the supply of essential resources, which are in increasing demand, particularly from emerging markets whose populations are rising. Globally, an estimated $32 trillion of investment is required by 2030 for energy, water, transport, and communications infrastructure. And it is not just growth in population to consider. Many nations are experiencing an ageing society. For instance, it is estimated that the world will have twice as many over 65s by 2020, which will have an impact on many areas, such as healthcare spending. In 2012 the first baby boomers start to retire in the UK, which will put huge constraints on the health system. Despite the rhetoric in this election campaign, I doubt the NHS budget will be sacrosanct for any party. The promises the politicians have made simply do not add up. Demographics are a classic slow burn trend with enormous implications for economic growth as well as patterns of consumer spending.
By considering the impact of each of these factors, the managers will look to construct a portfolio well placed to adapt from the changing economic landscape. One example is British Gas, a company that stands to benefit from more than one of these themes. Increasing demand for energy means that gas should become a more valuable commodity, plus it has lower carbon intensity compared to other fossil fuels so is considered a "cleaner" source of energy. Ultimately, these factors should translate into growing demand and increased profits.
In my view this is a fascinating forward-looking fund from an experienced fund management team. There are genuinely long term structural changes likely to affect investments for the next 20 years or more, so perhaps this is an ideal fund to have in your pension plan as a really long-term holding.
Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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