The STS Global Income & Growth Trust follows a distinctive quality-focused, conservative investment style. We try to consider the downside to investments as much as the potential opportunity and to produce good risk-adjusted returns balanced between income and capital growth. We believe this approach is especially relevant today given that we consider the economic outlook to be murky at best, driven by the very material and rapid rise in interest rates around the world, and still elevated equity valuations, notably in the US.
In this context, we want to invest in companies that are predictable, boast well-entrenched competitive advantages, and have limited requirements for capital when growing their businesses. Such companies tend also to exhibit attractive margins, allowing them to weather more challenging economic environments, especially when combined with a generally higher level of inflation, as we see today.
1. CME (Nasdaq: CME)
A good example is CME, previously called the Chicago Mercantile Exchange (Nasdaq: CME). This company is extremely well placed to benefit from the structurally greater need to hedge inflation and interest-rate risk, as well as from other areas such as commodity prices. The post-quantitative easing world, together with the return of inflation, is likely to be characterised by greater volatility and uncertainty, to the benefit of this company. This leads to attractive margins and returns as well as generous shareholders’ returns. CME is a core long-term investment in the fund.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
2. Reckitt Benckiser (LSE: RKT)
The second company we highlight today is Reckitt Benckiser (LSE: RKT). It is a business that will be familiar to many owing to its well-known brands, such as Dettol and Nurofen. This consumer health and household products company has had a lacklustre few years owing to many problems that we now think are being fixed. Following a three-year turnaround, Reckitt is now well on its way to generating stable and reliable growth.
Despite the market’s scepticism, reflected in the company’s lowest valuation in a decade, Reckitt has achieved high-single-digit like-for-like sales growth since 2019, alongside enhanced capital efficiency and reduced financial leverage. Reinforcing confidence in its future, Reckitt raised its dividend by 5% last year, ending a prolonged period of stagnation, and announced a significant share-buyback programme, signalling strong growth prospects ahead.
One in six workers in the US is co-employed by outsourcing specialist ADP
3. ADP (Nasdaq: ADP)
Finally, we are excited about ADP (Nasdaq: ADP). This is a very high-quality company engaged in the provision of payroll and human capital management services to large and small companies, predominantly in the US. ADP’s employer services division offers payroll, human capital management solutions, human resources outsourcing, insurance and retirement services.
The smaller but faster-growing professional employer organisation segment provides HR outsourcing to small and medium-sized businesses through a co-employment model; one in six workers in the US is co-employed by ADP. Despite this scale, ADP still has ample scope for growth as many businesses do not yet outsource these functions. As the competition for talent intensifies and the provision of HR becomes more complex, the impetus to outsource builds. This resilience and quality were demonstrated by recent results and the company’s decision to raise its dividend by 20%.
This article was first published in MoneyWeek's magazine. Enjoy exclusive early access to news, opinion and analysis from our team of financial experts with a MoneyWeek subscription.
Related articles
-
Barclays begins paying up to £100 compensation to customers after banking outageBarclays will pay up to £7.5 million in compensation to customers after its banking services were disrupted by an IT outage
-
Review: Shangri-La Paris – an ode to the world’s best foodNatasha Langan enjoys fine French and Chinese cuisine at the Shangri-La Paris
-
The star small and mid-cap stocks income investors have overlookedOpinion Thomas Moore, senior investment director, Aberdeen, highlights three company stocks as he shares where he would put his money
-
Falling revenues and mounting debt spell trouble for Jumia TechnologiesStruggling African e-commerce platform Jumia Technologies looks headed for the exit, says Dr Matthew Partridge.
-
Chemring Group: an explosive investment opportunity in defenceEuropean states are raising their military spending, and Chemring Group looks well placed to profit
-
Next reports £1 billion in annual profits for the first time – what's next for the retailer?Clothing retailer Next has become only the fourth member of its sector to surpass £1 billion in annual profits. What does this mean for the company's future?
-
Best of British bargains: cash in on undervalued companies in the UK stock marketOpinion Michael Field, Chief Equity Market Strategist, EMEA, Morningstar, selects three attractive UK stocks where he'd put his money
-
Building firm Keller presents low debt and ample scope for growthGeotechnical contractor Keller, which supports vital global infrastructure, boasts rising profits and a cheap valuation
-
PZ Cussons share price down 75% in last decade – why it's one to watchOpinion Once-strong consumer-goods business PZ Cussons is out of favour with the market. That spells opportunity for investors, says Jamie Ward
-
Cash in on the biotech sector with specialist trust BioPharmaOpinion BioPharma has an attractive niche in lending to asset-rich biotechnology companies
