From Hello Kitty to the NHS – where specialist managers are finding ideas

Sam Slator 04/04/2019 in Specialist investing, X Strategy

Last week, FundCalibre hosted its annual fund manager ‘speed-dating’ event. However, romance wasn’t the cards. Instead, we invited a number of financial journalists to spend six minutes each with six Elite Rated or Radar managers, to get their questions answered.

Our guests were:

Will Argent, VT Gravis UK Infrastructure Income
Alan Collett, TM home investor
James Douglas, Polar Capital Global Healthcare Trust
Chris Ford, Smith & Williamson Artificial Intelligence
Devan Kaloo, Aberdeen Latin American Equity
Karen See, Baillie Gifford Japanese Income Growth

We joined in, asking a couple of questions of our own. Here’s what they had to say.

What is the most interesting company you have met this year?

Will: I’m really interested in the new emerging sub-sector of energy storage. So I was excited to meet the people behind the Gresham House Energy Storage Fund plc, which invests in a portfolio of utility-scale operational energy storage systems located in Great Britain. The intermittent nature of renewables puts pressure on the National Grid network to match supply and demand in real-time; so cost-effective battery-storage plants have emerged as a solution to address the challenge.

Karen: Sanrio – the company behind Hello Kitty & Friends. It’s been through a difficult period recently: having transformed from a domestic merchandise company into more of a licensing company with reach into the US and Europe within just a couple of years, a change at the top of the company has led to it being run less aggressively and US and European sales have fallen. However, there are still huge opportunities in China. Until recently, companies were put off by the high levels of counterfeit goods in China, but there have been substantial changes and intellectual property rights are taken more seriously. Asia ex-Japan now accounts for the majority of Hello Kitty profits.

Devan: Ping An Insurance. It’s actually a Chinese company in our emerging markets portfolio. I first met the company ten years or so ago when it was a state-owned enterprise, with all the negative aspects that brings. Today it is a go-getting financial institution in terms of both product and connectivity with clients – it is far more sophisticated than its peers in the West. It’s really exciting to see that level of transformation and the opportunities it can bring.

James: Abbott laboratories. It’s doing innovative things in the field of medical devices. For example, its Freestyle Libre system is a revolutionary way of monitoring glucose. People suffering from diabetes can wear patches that monitor blood glucose levels via an app on their smart phone. The pricing of the product is also very attractive for both our healthcare system and for patients. patients.

Chris: Sensyne Health. It’s a spin out from Oxford University working in partnership with the NHS. It’s doing something we should all care about as both tax payers and patients: the NHS collects more data than any other health institution and Sensyne is using the data and better organising it to find hidden correlations. An algorithm is only as good as the underlying data, so this is really important in a clinical environment. Ultimately it will help save lives.

Alan: I don’t really meet companies as I invest in residential property. But the most interesting region at the moment is the East and West Midlands. These parts of the country took longer to recover from the global financial crisis, but employment is now high and infrastructure spend has finally picked up. Birmingham city centre has a lot of flats being built, but there is actually lower demand there than in suburban Birmingham, where I have bought properties. I also recently looked at Derby, Leicester and Nottingham. Of the the three, Nottingham is more attractive as it has a more diversified employer base, a university, a teaching hospital, a tram and better buses – while supply of housing is also more constrained.

What is the single biggest risk in your investment sector right now?

Will: Political uncertainty. Most infrastructure projects are underpinned by the government or quasi-government entities. On the positive side, HM Government has a substantial pipeline of 684 planned infrastructure projects over the next 10 years in the UK worth £413.1 billion. But there is always the possibility a new government would have different priorities.

James: Sentiment – especially in US politics. Healthcare has been a big talking point in recent US politic history – first ‘Obamacare’ was put in place by Obama, then Trump pledged to repeal it. We always need to stay on top of the narrative and policy pledges on aspects like drug pricing.

Chris: Ethical considerations. For example, people are concerned about how their data is used and it is regulated differently in different countries. Job worries are also a factor with people concerned robots could leave them without employment. We’ve joined a cross-party artificial intelligence group in the UK to give our voice and to stay on top of government thinking on these matters.

Devan: The US and China entering a trade war. Global growth would fall if some kind of agreement isn’t found. Most emerging countries are dependent on trade and would be hurt. If China fails to reflate its economy and growth collapses there would be similar issues.

Alan: Residential housing is surprisingly robust in a recession – people still need to live somewhere. But safety is a concern. When I think about buying properties I do what I call a ‘daughter test’. I get in the car and go and visit the neighbourhood – getting out and walking around. Then I ask myself: would I be happy for my own daughter to walk home alone here? Only if the answer is yes will I go ahead.

Karen: Getting the balance right between returning money to shareholders and growing a business – and hence achieving a dividend for the fund but growing its capital too. It will be important not to focus too much on one aspect to the detriment of the other.

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