Hamish Chamberlayne, Head of Global Sustainable Equities, explains how the Global Sustainable Equity Strategy has fared through the COVID crisis so far and discusses how they have navigated the recent market rotation from growth to value factors.
A diverse and inclusive workplace is critical in promoting vibrant and innovative thinking and is a core part of the team’s engagement programme in the second half of 2020.
The team aim to strike a balance between pro-cyclical growth and defensive secular growth; this has helped them to navigate the recent market rotation from growth to value factors.
Uncertainty remains and the team do not believe that recovery from the COVID crisis will be linear. However, they have noted that some sectors, such as technology, have rebounded quicker than others.
Hello, I hope all of you and all of your families are staying well. It’s a pleasure to give you an update as we reach the halfway point in this very strange year that we are living through. But before I go into the portfolio and review of our investment performance, I’d like to take this opportunity to thank all of the essential workers who have kept our economies open and running over the last few months. I think this crisis has really shone a light on all the valuable work that we often take for granted. I think this is also very relevant for sustainability because at its core, sustainability is about win-win outcomes and we have this belief that companies that do the right thing for all their stakeholders will ultimately be the most successful companies over the long run.
The importance of diversity and inclusion
And it’s a very important part of our investment process — doing a human capital and culture assessment. We believe companies with vibrant cultures, innovative cultures, where employees are motivated, will be the most successful companies. As part of the human capital and culture assessment, we also look at diversity and inclusion, another very important factor especially given the events of recent times. This is a core part of our engagement programme this year. Again, just to reiterate, we think this is a really interesting time to be looking at how management teams are behaving. It’s a strong indication of the quality of a management team how they have navigated through this crisis.
Outperformance in both a rising and falling market
So, we’ve had another really good quarter. We’ve outperformed the MSCI World Index, our benchmark, again. What has been really pleasing is that we’ve kept up, and outperformed, a rising market having outperformed a falling market significantly in Q1. And this has been very pleasing for us because this rally has really been characterised, at some points, by a strong rotation from growth factors into value factors and yet we have still kept up with this rising market. I think we can attribute that to a few things. The way we go about portfolio construction is that we think of it in two buckets; we have what we believe are defensive growers in one bucket of our portfolio and then we have pro-cyclical growth in another bucket. And we try to strike the right balance between these two buckets – between pro-cyclical growth and defensive secular growth – with a commonality underlying all this of long term resilience and long-term compounding potential.
Recovery will not be linear for all industries
So, as we look around the world today, there is still a lot of uncertainty out there and obviously people are rightly concerned about the effects of a [potential] second wave of this virus as we go into the second half of the year. In the near term our economies have actually rebounded quite strongly, a lot of sectors have recovered quite quickly and I think it is important to underline the fact that this is not an even recovery. There are some sectors, which we expect will remain depressed for quite some time, namely those exposed to travel, leisure, hospitality. We expect it could be a very patchy recovery for companies in those sectors and we have very little exposure there. But for other sectors we actually expect to see a strong recovery and we have actually started seeing a strong recovery and we actually feel quite good about the prospects for many of the companies that we invest in. One thing we are excited about is the potential for a ‘green recovery’; for government stimulus to be directed towards sectors that are aligned with decarbonisation, with renewable energy but also building technology and also e-mobility. And again, digitalisation is a trend that we see accelerating. We have now had a few results from some of our companies over the last few months and it was really notable how some of our software companies actually reported strong growth through this period.
Navigating the value versus growth debate
A common question we get asked is around valuations and this whole value / growth debate. One of the things we focus on is cash flow growth over the next three and five years. We are really trying to invest in companies where we see significant opportunity over the coming decade and we are very focused on those cash flows over the next three and five years. We still see a lot of attractive investment opportunities. And I think this very accommodative monetary policy that we are seeing from central banks is supportive of equity market valuations and we believe that it will be the right strategy to keep on focusing on those companies that have resilient and compounding growth characteristics, which is such a fundamental characteristic that we look for and again, we believe it is highly aligned with thinking about investment through a lens of sustainability.
So, thank you very much for your continued support. I hope that has given you a good insight into the way that we are thinking. I’d like to reassure you that we are still working very well together as a team and we are excited about the future.
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