Getting to know the portfolio
We’ve spoken previously about the three megatrends which underpin the future growth of companies we invest in – demographic change, the future of technology and resource scarcity.
Over the last few months we have developed our fundamental analytical framework to help us build an accurate picture of where the growth opportunities are, ensure we have a sufficient level of portfolio diversification and to give us better visibility on fundamental exposure to risk.
This helps us identify where the most valuable aspects of an industry are. We typically tend to favour parts of the value-chain that are less competitive, have better industry structure, higher barriers to entry and therefore more pricing power.
What’s particularly interesting for us is where our megatrend analysis overlaps For example, in the space between resource scarcity and the future of technology, we have stock ideas related to automation, while between technology and demographic change there are fascinating developments in the world of bespoke healthcare and use of data.
One recent addition supported by this last sub-theme is US-listed ResMed, which we believe has a very attractive long-term revenue growth outlook.
One of ResMed’s key products is a wireless sleep tracker that sends information on sleep patterns, of patients suffering from sleep apnoea, back to a smartphone app.
Changing exposure to luxury
One particular area of focus for us currently is in luxury goods, with demand being driven by the rapid increase of the emerging market middle class.
In recent months, we refocused exposure in the portfolio from ‘hard’ luxury – products such as watches and jewellery – to soft luxury, high-end apparel and leather goods, which we believe are better placed to tap into this structural growth trend.
Kering, is one example. It owns high-end brands such as Gucci, and with the support of favourable demographics and social trends, we believe it is likely to remain stronger for longer.
With these strong luxury brands, the market seems overly focused on short-term concerns around trade and a slowdown in China, and seems to be missing the long-term growth opportunities coming from a younger demographic of EM middle-class consumers.