Hamish Chamberlayne, Portfolio Manager for Janus Henderson’s Global Sustainable Equity Strategy, discusses 2018’s news flow and the long-term trends that are shaping his investing.
Q. What are your key observations about 2018 to date?
There is strong evidence that investment trends continue to favour those companies transforming the world for the better. Our belief is only those companies that are committed to building a sustainable economy are likely to thrive in an environment that is rapidly evolving. Climate change, resource constraints, and ageing and growing populations are some of the most complex megatrends humanity has ever faced, and demand innovative and lasting solutions. We view sustainability and the disruption necessary to bring about change as being two sides of the same investment coin. Technological disruption, in particular, is now penetrating every sector of the economy.
News flow this year bears witness to continuing momentum in clean tech investment. China plans to invest $368 billion into renewable energy projects by 2020, and it is now the world’s largest electric vehicle (EV) market. In the Middle East, SoftBank’s Vision Fund, which invests in disruptive future technologies, has announced it will help back a $200bn 200GW solar power development in Saudi Arabia. To put this in perspective, 200GW is the equivalent capacity of approximately 200 average-sized nuclear reactors*. On the topic of plastic pollution, the BBC Blue Planet II series received world-wide acclaim for highlighting the terrible impact that plastic is having on our oceans. Our strategy has very little exposure to companies contributing to these issues, but we will be engaging with the few holdings where there is some plastics usage in their products.
Q. What are the key themes that are shaping the markets in which you invest?
As long-term investors in those companies driving sustainability and promoting responsible industry, the ten themes we look to invest in have not changed.
Our ten themes
Source: Janus Henderson Investors as at 30 April 2018. For illustrative purposes only; this does not constitute an investment recommendation. Please note the number of stocks in each theme may vary as there is no forced distribution by theme.
Taking a broad view of the market, it is apparent that the fastest growth subsectors are increasingly aligned with sustainability. We are finding exciting investment opportunities in areas such as cloud computing and artificial intelligence, the electrification of transport, energy efficiency, smart cities, industry 4.0, sustainable infrastructure, financial services, education and research, and healthcare. We view these as long-term trends that should transcend both economic and political cycles, giving us confidence in the duration of future growth. Thanks to the UN Sustainable Development Goals**, we see sustainability growing in importance at company management and board level. Companies and investors are realising sustainability simply makes good business sense. And if it makes good business sense, then it makes good investment sense.
We also want to stress that there are two sides to our investment approach – as well as selecting stocks for their positive impact on the environment or society, we also avoid investing in those companies that we view as having unsustainable business practices or that are having a negative impact on our world. As a key example, our strategy is deliberately low carbon. We strongly believe the death knell has sounded for big oil, given overwhelming scientific consensus that burning fossil fuels is driving irreversible climate change. Oil is also the primary raw material in plastic production. The disruption from the transition away from oil as a primary input into everything that we consume is likely to create major losers as well as big winners.
Q. Where are you currently seeing the most opportunities?
The merger of Janus Henderson has increased the resources available to our strategy and many of our new positions for late 2017/early 2018 are the result of working with portfolio managers and analysts in the Denver office. Our strategy remains skewed towards the Knowledge & Technology and Efficiency themes, where we continue to identify compelling investments. We see technology as a key enabler of sustainability; it is crucial to understand, however, whether or not a company is on the right side of technological disruption.
Many of our investments are addressing more than one of our sustainability themes. For example, semiconductor companies are having a transformative impact on many areas. These include medical technology and health diagnostics, electric and autonomous cars, smart cities and factory automation, renewable energy and energy efficiency, and water and environmental services. Semiconductors are the backbone of a smart and connected world, and the industry is evolving from serving computing and smartphone markets to being adopted in a growing number of industrial and Internet of Things applications.
We continue to pay 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.
*Source: Janus Henderson Investors, desk estimates based on World Nuclear Association data, as at April 2018.
**The United Nations Sustainable Development Goals are a universal call to action to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. Find out more here: https://sustainabledevelopment.un.org/sdgs
Gigawatt = a measure of power that is the equivalent of a billion watts.
Industry 4.0 = a name for the current trend of automation and data exchange in manufacturing technologies. It includes the Internet of Things.
Internet of Things = the interconnection via the internet of computing devices embedded in everyday objects, enabling them to send and receive data.
Low carbon strategy = a strategy that seeks to limit its exposure to companies that produce fossil fuels, or that burn fossil fuels significantly within their business and supply chains. The burning of fossil fuels produces carbon dioxide, one of the major gases identified by scientists as causing climate change.
SRI = sustainable and responsible investing.
Sustainable economy = economic development that attempts to satisfy the needs of humans but in a manner that helps sustain natural resources and the environment for future generations.