Simon Gergel, Portfolio Manager of The Merchants Trust PLC Lucy Macdonald, Portfolio Manager of The Brunner Investment Trust PLC
Simon Gergel, Portfolio Manager of The Merchants Trust
Lucy Macdonald, Portfolio Manager of The Brunner Investment Trust
To round off the first part of the conference we held a panel discussion with Simon Gergel, Portfolio Manager of The Merchants Trust, and Lucy Macdonald, Portfolio Manager of The Brunner Investment Trust.
Lawrence Gosling, the founding editor of Investment Week, took to the stage to compere the panel discussion with Simon and Lucy. The first topic he tackled was aimed at Simon, and asked about how a dividend investor deals with the challenge of disruption. Simon felt that the pace of disruption is much faster than historically, and seems to be increasing. Companies that were once seen as market leaders can lose significant market share quickly, or be decimated altogether. Therefore, for any dividend investor the key question is the sustainability of the dividend. In this environment being active is important in finding the companies that are able to grow and maintain dividends over the long term.
The panel then moved on to discuss whether the UK was a vast enough hunting ground to find the best ideas, particularly when thinking about those companies disrupting industries. Lucy believes that within the Brunner Investment Trust taking a more global approach has allowed her to access a much wider array of businesses, plus those companies that are disrupting industries, investing across Asia and the US. However, investors should also remember that not all disruption comes from the large well known technology companies. Often the most interesting disruption trends for investors are the ones that aren’t talked about, as there is more potential for generating returns. Simon raised the example of the US ice cream market, where a new entrant has stolen 5% market share from near 0%, and has achieved this by using Instagram as its main marketing channel. A company like this can go underappreciated, as it isn’t a typical technological disrupter; however, it is using new approaches to its customers to increase its profits.
In addition to this, Lucy mentioned that disruption can often be a positive trend for established companies in helping them reshape their businesses, if they are able to successfully deal with it. These businesses can also be interesting for investors due to the significant upside potential for finding those that are able to thrive under the challenge of disruption. For example, the success of Microsoft in the last few years; this was a company that many were negative on, but it has taken on the challenge of disruption, and grown into a global leader in cloud computing.
Lucy then discussed how she looks at typical growth companies to understand their businesses models, and why proper analysis and active stock-picking is crucial. Many technology companies and typical growth stocks invest large sums in capex, and key to any analysis of the value of the company is understanding this. The notion of a company’s assets determining its value has significantly changed over the last 20 years, and now data, people and intellectual property are just as important as physical infrastructure.
The topic of how useful investing across the market cap spectrum is for income came up. Simon mentioned how within The Merchants Trust they had recently changed the benchmark to the FTSE All Share, to reflect their desire to look further for income in the trust. This has allowed them to invest in some small and mid-caps stocks that pay strong dividends. He feels that to succeed in this space you need a strong research team that are well informed; he has the resources of our UK-based small and mid-cap team, as well as our large research platform, to find the best ideas. The panel then covered Brexit and how important this is to how they are navigating the future. Both Lucy and Simon agreed this is a key topic not only for UK businesses but ones across the world, as it represents the rise of populism and how corporations can deal with it. In mainland Europe this has been tempered somewhat, and has resulted in some stronger performance that we have seen this year. For UK companies Simon always asks how BREXIT will impact their business, and also tries to understand this with analysis; this is a key challenge for UK equity investors, particularly for the stocks more connected to the UK economy.
From an outlook perspective, both managers were cautious on the lack of volatility they see, which they feel is worrying. They felt that given where valuations were it was prudent to keep some money in cash to take advantage of any pullbacks in the market. However, on a corporate level Lucy pointed out that topline growth for most companies is strong, as earnings are good as well, therefore there is some reason for optimism.
Go further in this Ezine to find specific sections covering The Merchants Trust and The Brunner Investment Trust