A professional investor tells us where he’d put money. This week: Jeremy Thomas of Sarasin & Partners selects four firms that will be long-term winners.
The global financial crisis that began a decade ago and the consequent super-easy monetary-policy response is drawing to a close. Tax cuts in the US will further accelerate the move towards the end of this extended economic cycle. What does this mean for investors?
We believe global markets will begin to reflect the end of the expansion phase of the cycle in the coming year or so. Equity valuation multiples are unlikely to rise further and corporate margins in much of the developed world are peaking. Economic growth and above-average market returns will be harder to come by. Rather than relying on a rising tide to lift all boats, investors will need to actively select companies able to sail under their own wind. Furthermore, substantial unpriced risks in climate change and cybersecurity will challenge ill-prepared businesses and their investors.
Despite these risks and challenges, there are exciting and durable themes evident in the world today. A focus on the unstoppable global trends set to shape the world in the decades ahead should uncover long-term winners and sustainable investment returns.
Get exposure to IT and automation
The digitisation of the global economy is in its early stages and offers tremendous opportunities for the global investor. Stocks to watch in this area are myriad, but as cloud computing in its many forms aggressively takes a bigger share of IT budgets globally, we believe California-based experts ServiceNow (NYSE: NOW) will be among the key winners. Its penetration of large enterprise customers is increasing, and with high renewal rates and the ability to meaningfully expand its operating margins ahead, it presents a long-term sustainable investment case.
Meanwhile, automation is on the cusp of a great leap. An ageing workforce, rising labour costs in developing economies, and improving technology are driving growth in factory, logistics and process automation. Keyence (Tokyo: 6861) – the leading supplier of sensors, measuring systems, laser markers, microscopes and machine-vision systems worldwide – is at the forefront of factory automation. The company has a 21% market share in the vision-systems market – the highest-margin, fastest-growing segment in industrial automation.
Leaders in healthcare and retirement
Consumer spending priorities are also shifting rapidly, and ageing in the developed world implies rising demand for healthcare and retirement savings. In healthcare, Fresenius Medical Care (Frankfurt: FME) is the world’s largest provider of essential dialysis services and equipment. Dialysis continues to be critical to a growing group of patients – with demand for diabetes treatment expected to continue rising by 6% per annum – and more than half of the dialysis machines used worldwide are made by Fresenius Medical Care.
For retirement savings, AIA (Hong Kong: 1299) remains one of the highest-quality players in the Asian pensions and medical-insurance markets, with one of the best-established agency networks, and inexorable long-term demographic trends underpinning its growth. The penetration of life and savings products in Asia is currently low, and we expect growth rates to remain strong in the decades ahead.