Joseph Stephens and Sagar Thanki, portfolio managers of the Guinness Sustainable Global Equity Fund look ahead to 2022 on the first anniversary of the fund’s launch.
“As we look into 2022 the prospects for further multiple expansion at the index level do not look particularly likely given that central banks are talking about tightening monetary policy. On the other hand, demand in the economy remains very strong, US capital expenditure is at an all-time high, and most companies are raising prices which suggests the prospects for earnings growth in 2022 look more positive than multiple expansion. This bodes well for our high-quality, growth businesses.” Joseph Stephens, Portfolio Manager, Guinness Sustainable Global Equity Fund.
“In the current market environment where inflation concerns and slower growth remain top of mind, we are confident that a focus on high quality growth stocks, underpinned by structural changes brought about from the shift to a more sustainable economy, stands us in good stead going forward. We also believe that investing in mid-cap businesses and avoiding large cap (often mega-cap tech) businesses commonly found in ‘ESG’ funds, can be a key performance driver as governments continue to scrutinise conglomerates; the mid-cap space also remains attractive from a valuation perspective versus its large-cap counterparts.” Sagar Thanki, Portfolio Manager, Guinness Sustainable Global Equity Fund.
2021
Commenting on markets this year, Joseph Stephens said:
“Over the course of the year, while value and growth stocks rotated in and out of favour – based on the outlook brought about by Covid-19 mutations and lockdowns, rising inflation, supply-chain shortages, and central bank rhetoric – quality stocks outperformed both styles, and with less volatility.
“Large-cap stocks, and developed markets, also broadly outperformed their counterparts as investors sought greater safety in large companies with less growth uncertainty. With stock valuations broadly higher versus their historic averages, equity market performance across all sectors has generally been driven by higher earnings growth as companies recovered from the lockdown-induced slowdowns experienced in 2020.”
Portfolio manager, Sagar Thanki, added:
“Since mid-September value and growth have switched in-and-out of vogue as markets have dealt with the Omicron variant, supply-chain shortages, higher inflation, a more hawkish Fed, and increased worries around China and global growth in general. In this period our high-quality companies – with secular growth themes – weathered the various uncertainties and outperformed the MSCI World Index by 1.42%, in US Dollar terms. Further, our value discipline – whereby we seek to avoid paying up too much for high levels of expected growth in the future – proved beneficial as it meant that we did not hold any of the extreme high-growth, unprofitable tech stocks that sold off sharply in recent months.”
2021 Sustainability Themes in review:
We currently employ 3 broad sustainability themes to help guide our assessment of potential investments based on the degree to which a company is part of the transition to a more sustainable economy. These long-term structural changes have been driven by changes in behaviours and preferences by consumers and governments alike. Evidently over the last two years, there has been a marked step-change with Covid-19, and its resultant effects on businesses and consumers, accelerating the growth and permanence of these sustainability themes:
1) Health & Wellbeing – Covid-19 has obviously benefitted diagnostics companies which provide Covid-related tests and other select pharmaceutical companies, such as those that were able to create vaccines. Nonetheless, it also put strain in some health care areas where elective procedures and drug trials were put on hold. However, we have now seen some examples of lasting changes, such as emphasis on greater hygiene (benefiting fund holding, Steris) and a shift towards at-home care (benefitting fund holding, Addus Homecare).
2) Productivity & Connectivity – Companies in this theme include key enablers of innovations across industries: from Interroll, which specialises in automation within logistics (benefitting from the growth in ecommerce), to Arista Networks, which supplies high-end networking switches and software to data centres that have allowed many of us to continue working and interacting.
3) Resource Efficiency – The importance of needing to transition away from fossil fuels, become more energy efficient, and create circular economies was further highlighted by this year’s Conference of Parties (COP) 26. Our exposure to the theme include Tetra Tech, a US consultancy specialist focused on areas of water, environment, infrastructure, resource management and energy. Tetra Tech continued to win new contracts throughout the pandemic as governments placed greater focus on climate change initiatives.
The Fund holds 30 equally weighted, high-quality, mid-cap, growth companies with sustainable products and practices.
Each company held in the Fund has revenues aligned to at least one of our sustainable themes: Health & Wellbeing, Productivity & Connectivity, and Resource Efficiency.
