Behavioural finance, investor irrationality and finding opportunity with Steve Andrew
Steve Andrew, manager of Elite Rated M&G Episode Income, discusses how behavioural biases and...
This weekend, Japanese Prime Minister Abe Shinzo will welcome world leaders to Osaka for the G-20 summit.
Established in 1999, the G-20 has really been at the forefront of global governance since November 2008 – when then U.S. President George W. Bush held an emergency meeting in response to the global financial crisis.
Today, the G-20 represents more than 80% of the global economy: leaders from 19 countries plus the European Union. The semi-annual meetings now encompasses an ever-expanding range of global issues and major themes this year include a number close to FundCalibre’s heart.
Here, we take a look at four of the topics leaders will be focusing on*, and how they may link to investment opportunities.
Trade wars are bound to be a big topic of conversation. Whether US President Trump and Chinese President Xi Jinping actually talk this weekend remains to be seen, but other G20 leaders will be seeking to ease the tension.
According to a recent report from the World Trade Organisation (WTO), October 2018 to May 2019 saw the second largest spike in trade barriers to doing business between the G20 nations on record, with 20 new restrictions. This means that since the trade war first started in earnest in July 2018, US$815.9 billion worth of trade has been affected by such measures.
But with uncertainty comes opportunity. In a recent interview with FundCalibre, Steve Andrew, manager of M&G Episode Income, said that “even the most pessimistic of forecasts suggests the overall impact of trade wars will be no larger than the normal forecasting error for US growth. Fear of the unknown is creating opportunities.” Likewise, William Lam, manager of Invesco Asian, who is a contrarian investor, lets the fund “feed on the uncertainty”.
Anyone who had to deal with new GDPR rules last year will know that data is all around us. Governments, companies, individuals – we all rely on data to make all sorts of important decisions about our healthcare, our education and our insurance… the list goes on. And artificial intelligence, and the use of algorithms to interpret that data, is a huge investment theme right now.
It’s all very well having data, but as many companies know to their detriment, keeping that data secure is vital. So cyber security is also on the radar of many fund managers, including Nick martin, manager of Polar Capital Global Insurance fund. While it’s a nascent theme, the opportunities are growing exponentially.
Another part of the innovation discussion amongst the world’s leaders will be digitalisation. There are a wealth of companies disrupting their sectors through digital transformation: from Airbnb to Uber, Amazon to Tinder, the key to success will be for the disrupters not to become disrupted themselves.
Having recently watched the BBC 1 series ‘War on plastic’, we at FundCalibre are attempting ‘plastic-free July’. Easier said than done when there seems to be plastic in absolutely everything around us – but we will try!
And while President Trump may be dismissing climate change, the rest of the world is starting to take it more seriously, including the investment world. Not only are more and more fund managers including environmental, social and governance practices into their investment processes, but some are also measuring their own carbon footprint.
EdenTree, a pioneer of responsible investing, has been measuring the carbon footprint of all its funds for a number of years. Elite Rated EdenTree Amity UK has a carbon footprint 50% below that of the FTSE All Share, for example, while SLI UK Ethical has a carbon intensity 56% less than its benchmark.
This last topic is a huge theme in Japan and a significant part of ‘Abenomics’. As Chisako Hardie, manager of AXA Framlington Japan fund explained to us recently, the Japanese population is declining, so from a business perspective Japan needs to use resources better. This includes more use of robotics and encouraging women back to the workplace. “Well educated people are desperately needed to come in and this is where women can help,” she said, “particularly as many are educated with about 58% going to university. We are also seeing a refreshing increase in female entrepreneurs.”
Another consequence of an ageing population is, of course, healthcare. As James Douglas, co-manager of Polar Capital Healthcare Trust, pointed out in his recent podcast, the marriage between healthcare and technology is a huge long term trend. “Healthcare companies are investing in, and already using technologies to change the way that healthcare is being managed, delivered and paid for,” he said. “Ultimately all global healthcare systems are facing the same challenge: how can we deliver more healthcare, to more people, for less money.”