The Analyst: Get tied in to the global supply chains

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The Independent Online

I believe we are living through an extraordinary period of global growth, and a new world order is appearing as the dominance of the West gradually wanes.

Thirty years ago, the US, Japan, Germany, France and the UK together accounted for 90 per cent of the total value of goods and services produced in the world. Today, that figure is 64 per cent and falling, due to the rapid development of the economies of the emerging markets. The potential of these areas is as diverse as they are vast but, broadly speaking, Latin America can be seen as the world's farmer, China as the world's manufacturer, Africa as its miner and Russia as its energy supplier.

Meanwhile, the Western economies are deeply in debt and have aging populations, which together mean that their growth is likely to be far less dynamic in the future.

So how do we play this emerging trend? I have already covered one fund in these pages – Junior Oils – that would benefit from a rising oil price. This week, I shall focus my attention on the JM Finn Global Opportunities Fund, which is more widely diversified.

JM Finn is not a household name, but in fact the firm was founded in 1945 and is one of the largest independent stockbrokers in the UK. The company has only recently made a move into fund management, but it hasn't taken it long to make its mark. The Global Opportunities Fund was launched in 2004, and since then its manager, Anthony Eaton, has turned it into one the top performers in its sector.

Potential investors should be aware that this is no ordinary global fund. The portfolio is currently dominated by one big theme that is being played out all over the world: urbanisation. As people in emerging economies become richer and more prosperous, they tend to move to the cities. This is now happening on an unprecedented scale. The last great phase of industrialisation probably came after the Second World War, when the Marshall Plan rebuilt the West and Japan. That affected some 300 million people, but the current situation is on an entirely different scale – around three billion people will be affected.

For example, it is predicted that over the next 12 years a number of people equivalent to the entire population of the United States will move from China's countryside to its cities. This multitude will need homes, schools, hospitals, cars to drive and roads on which to drive them. Above all, they will need food and electricity.

The newly industrialised countries are now competing with the West for raw materials, and it is this surge in demand that has caused the price of all commodities to rise substantially. It was a major story last week that the price of wheat was going through the roof, and that the prices of raw materials such as oil and copper are also high.

The reason for these stunning rises is that the demand has come at a time when industry is in no condition to provide enough new supply. The last great oil-field discoveries were probably in the 1950s. Agriculture has been run down significantly over the years, and the mining industry has also been diminishing. When you consider that it takes 15 years to bring a new mine to full production, the supply-chain problems become apparent.

When crafting the fund's portfolio, Eaton's ideas come from his own research as well as his extensive analyst contacts. He looks at supply chains all the way down the line: for example, in the construction industry this could include cement suppliers, companies that mine raw materials such as iron, and businesses that build the construction machinery. The fund is therefore able to benefit at every stage of the process.

So really this is a single-theme fund, but it is a theme that affects the whole world and will take many years – even decades – before it is played out.

The fund will be more volatile than many global funds because of its focused approach. It has been affected by the recent market turmoil, but if you really believe in this "big bang" concept then this is one fund you should be considering. As a long-term investor, I consider this to be exactly the kind of fund to hold for the next 10 or 20 years.



Mark Dampier is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independent

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