When the Covid-19 pandemic first triggered a global lockdown early last year, few of us could have fully appreciated just how much our lives would change as a result. More than a year on from the initial outbreaks we are still a long way away from what we all once thought of as “business as usual”.
The good news is that there is now a light at the end of the tunnel in the form of mass vaccination. This is an extraordinary achievement, given that vaccines have historically taken years, rather than months to formulate. We still have some time to go before we’re in the clear. Countries are making progress at different rates, and while the end of some national lockdowns might be on the horizon, international travel will be disrupted for some time to come. But it no longer seems like wishful thinking to hope that this year will see lockdowns lifted for the final time.
However, while many sectors of the global economy will return rapidly to something resembling pre-pandemic status, other industries will take far longer to recover, and still others will find that the business environment has been permanently transformed by the events of the past year. For example, it would be a stretch to describe this as the “end of the office”, but many big companies have made it clear that employees will be spending more time working from home, even after the pandemic is gone. That in turn will have a knock-on impact not only on commercial property landlords, but also on shops and cafes located in city centres, which are heavily reliant on commuter traffic.
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And there are other, less prominent risks. Government debt piles have risen sharply due to measures taken to cushion the economic impact of lockdowns. Higher debt levels tend to be followed by periods of lower growth and higher tax. Indeed, many countries are already discussing ways to raise money either through higher corporation taxes (be that through higher rates, or tighter restrictions on tax planning) or in some cases, even wealth taxes. At the same time, ongoing fiscal and monetary stimulus run the risk of creating localised bubbles in certain markets or assets. We have already seen some dramatic examples of short-term exuberance driving spikes in individual stocks, for example.
In short, we can be almost certain of a recovery this year. But the size of that recovery, and the nature of the winners and losers that will be created in the process, is much less certain. How can investors best navigate this environment? The answer is to focus on the same sorts of investment characteristics that any long-term investor needs to focus on. Covid-19 has certainly been hugely disruptive and has thrown up many unique situations – but disruption and uncertainty are constants within investment. The opportunities the market offers may change but the underlying principles of successful long-term investment remain the same.
At Martin Currie Global Portfolio Trust, we invest in market-leading companies with sustainable business models, operating within sectors with low levels of disruption risk, which are well-placed to benefit from structural growth opportunities. Over the next decade, we expect these opportunities to arise in areas including healthcare infrastructure, transport electrification, and renewable energy, among others. By focusing on these long-term growth stories, we are better able to find companies which are already generating high returns that can potentially also be sustained over the long term.
Solid balance sheets are another key factor. Balance sheet strength represents a vital margin of safety which can help a company to ride out unexpected turbulence, as well as exploit fresh opportunities rapidly as and when they arise. Market dominance also contributes to strong pricing power, a valuable attribute against a disruptive backdrop with a lack of meaningful inflationary pressures. Our approach actively incorporates ESG (environmental, social and governance) measures as a core part of our selection process. Our rationale is quite simple. If a company wants to remain a leader in its sector for the long- term, its management team must actively engage with long-term thinking about the world in which the company operates and its impact on those around it, not just its shareholders. So ignoring ESG is not an option.
Companies which offer all of these qualities are, of course, not common. So we invest globally – our concentrated portfolio of 25 to 40 investments is not restricted by geography or sector. And we make sure that we pay the right price for them. Even the best companies can be too expensive at times. Hunting down resilient, high-quality companies and buying them at attractive prices still remains the best approach for long-term investors, rather than trying to capture the sentiment-driven mood swings which will be inevitable as we recover from one of the most significant economic shocks of any of our lifetimes.
