Hamish Chamberlayne, Portfolio Manager for Janus Henderson’s Global Sustainable Equity Strategy, discusses his key takeaways from 2017 and the long-term trends that continue to shape his investing.
Q. What are your key takeaways from 2017?
If politics were the main driver of equity market returns then this should have been a difficult year for investors. The Trump Presidency has been besieged by one controversy after another, tensions with North Korea have escalated, no progress has been made with Brexit talks and, with signs that inflation is picking up, central banks have been sounding incrementally more hawkish. On top of all of this there have been numerous natural disasters to contend with. Hurricanes Harvey and Irma had devastating impacts on Texas, Florida, and parts of the Caribbean; South Asia has suffered from some of the worst monsoon flooding in years; and there have been heatwaves and wild fires in many parts of the world. Hurricane Harvey is expected to be the most expensive natural disaster in US history, with cost estimates about the economic impact as high as US$190bn. This would be more than the cost of Hurricanes Katrina and Sandy combined. Worryingly, all of the billion-dollar floods in American history have happened in the 21st Century and been associated with hurricanes making landfall. This is a warning sign for the future given global average temperatures are still ‘only’ around 1 degree Celsius above pre-industrial times.
It seems almost miraculous that global equity markets have risen against this backdrop of unsettled politics, increasingly hawkish central banks, and devastating natural disasters. In general, though, economic conditions have continued to be favourable and many companies are reporting improving earnings trends. But not all companies will benefit in equal measure: technological advances are impacting every sector and the pace of disruption appears to be accelerating. We believe the best companies to back are those which are embracing technological changes and investing for the future. It is an exciting time to be an investor.
Q. What are the key themes likely to shape the markets in which you invest?
There have been many encouraging developments with respect to the transition to a low carbon economy. Renewable energy costs have continued to decline. Improvements in materials technology have enabled larger and more durable wind turbine blades, and this has driven down the cost of wind projects to new record lows. Wind power is now so competitive that it is looking increasingly probable that the US will exceed the decarbonisation targets set under the Obama administration. As we have been saying for some time now, we truly think that “economics is going to trump politics” in the transition to a low carbon economy. Electric vehicles have also been in the news, with more countries announcing plans to ban the use of fossil fuel-powered cars. Most recently China, the world’s largest auto market, has joined Norway, France, Britain, and India in announcing plans to end the sale of petrol and diesel cars, with some expecting this to happen as soon as 2030. The much touted trends of the ‘Internet of Things’ and ‘Industry 4.0’ have also gathered pace in 2017 with analog semiconductor companies reporting strong demand from industrial and automotive customers. We really are moving towards a connected world where machines and ordinary goods are harnessing the power of computing and becoming more efficient.
Q. Where do you see risks and opportunities?
As a sustainability themed fund we take a long-term approach, focusing on the investment implications of megatrends that transcend political cycles. Rising populism will not change the inexorable trends of population growth, ageing demographics, resource constraints, and climate change. We believe productivity is the key to addressing these issues and companies that offer solutions will see growing demand for their products and services. We continue to focus on identifying companies that are building sustainable long-term franchises and that have attractive, durable growth characteristics. We are paying close attention to the risk profile of our portfolios, as our aim is to construct a resilient portfolio. We think the companies we have invested in appear attractively valued given the confidence we have in their long-term growth prospects.
Hawkish – when monetary policy is hawkish, it means that policymakers want to make policy less accommodative, to keep rising prices in check. One of the key ways they try to do this is withdrawing asset purchases on the open market (quantitative easing) and raising interest rates.
Inflation – the rate at which the prices of goods and services are rising in an economy.
Internet of Things – the interconnection via the internet of computing devices embedded in everyday objects, enabling them to send and receive data.
Industry 4.0 – a name for the current trend of automation and data exchange in manufacturing technologies. It includes the Internet of Things.
These are the manager’s views at the time of writing. They should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed.