‘If there were only one truth, you couldn’t paint a hundred canvases on the same theme’ – Pablo Picasso
One of the big challenges with putting together an investment portfolio is the sheer choice out there of consitituents – even worse when (like ourselves) you invest globally rather than in a single domestic market. We love nothing more than pacing through the corporate results and presentation documents of each potential investment we might make but it is important to remember that no company exists in a vacuum and time spent thinking about the world at large can be hugely complementary. It can also lead to a veritable flood of ideas all inspired by the same big directional theme in financial markets
Recently we were drawing together ideas for a new presentation about the Fund and its first four months (plus) of its existence and we thought it would be useful to again highlight the three most significant current investment themes within the portfolio.
The first centres on UK listed shares and our perception that there is still too much fear about Brexit factored into a number of companies with high profits or cashflow generation dependence from their domestic UK operations. Clearly the UK economy is not in rude health but overstated fears about an imminent economic recession led both to a sharp fall in the Pound as well as the share prices of many domestic centred UK companies. Both have been climbing a wall of worry since and we believe this continues over the next little while aided by a general acknowledgement by both the current UK government and the negotiating European Union team that a period of transition needs to be added. This opportunity is why the UK is currently still our largest geographic asset allocation in the Fund.
The second theme centres on the Eurozone and our belief that the combination of French President Emmanuel Macron’s reforms and the need for (still just about) German Chancellor Angela Merkel’s need to start forming a political and economic legacy creates opportunity. The Eurozone has lacked internal economic dynamism over the last decade and moves to boost entrepreneurial zeal, labour market flexibility and general self-confidence to consume and invest by the youthful French President should assist this. The other major criticism of the Eurozone has, of course, been heavy-handed German de facto leadership but a legacy-centred Mrs Merkel more willing to strike deals that benefits a pan-European zone should inspire better times for companies with Eurozone economic exposure. This is why we have added investments in companies listed in Belgium, France and Italy in recent weeks.
Our third top theme is that we expect a little bit more inflation in the world in 2018, enough to help supportive commodity prices and push bond yields up a little. This trend is supportive of not just companies with commodity exposure (although we have added here recently) but more generally it benefits companies with pricing power i.e. an ability to not just absorb higher costs but also to pass them on. This is the reason why you will often see talk of ‘leading market positions’ whenever we talk about some of our portfolio names.
We have other – lesser – investment themes apparent in the portfolio choices in the Fund too but these three collectively account for a good chunk of the overall portfolio because, as Picasso noted, you can paint more than one canvas from a good theme. Of course much additional work still needs to be done but thinking thematically certainly makes you think better…and that typically is to the benefit of any investment portfolio you are responsible for.