Finding multi-decade corporate growth

14 June 2019

Investing for the long-term

The Global Long-Term Unconstrained strategy has a long-term investment horizon, identifying investment opportunities that can offer multi-decade returns. To do so, we incorporate thematic analysis into our fundamental company research – focusing on three mega-trends – Demographic change, Future of technology and Resource scarcity. We believe these are crucial in understanding the future drivers of company growth and ultimately, long-term return potential.

Mega-trends – the long-term drivers of corporate growth

We have selected these three mega-trends because our belief is that thematic analysis should be based on long-horizon trends. Our three mega-trends will be running through the market over multiple-decades and reflect the three important aspects of society; people, progress and the planet.

How does this focus our research? In our view it is meaningless to attribute how much of a company is exposed to, for example, demographic change in broad terms. So, within each mega-trend we have sub-themes where we see strong compounding growth. Importantly these themes are measurable within an individual company, and using our thematic framework, we can build a picture of the portfolio’s overall exposure to these growth drivers.

The Thematic Bubble Map – understanding the portfolio’s exposure to long-term growth trends

Source: Martin Currie and FactSet as at 31 March 2019. Representative Martin Currie Global Long-Term Unconstrained account shown.

Demographic change encapsulates areas such as growth in the emerging markets middle-class, healthy living, or ageing populations. In Future of technology, we capture outsourcing, artificial intelligence and cyber-security. While in Resource scarcity, we have sub-themes such as electric vehicles, climate change, or energy saving.

Some of the sub-themes intersect with two or even all three mega-trends. For example, Green Energy captures both Resource Scarcity and Future of Technology reflecting both the demand for renewable energy sources alongside the developments in technology needed to deliver this.

A greater understanding of portfolios and growth potential

We want to deliver long-term growth to investors and our thematic analysis gives us greater visibility over the portfolio.

Through mapping the sub-themes, we can identify the growth opportunities within them

For example, the market within an individual theme can be highly fragmented. Looking at cyber threats, individual companies often operate in a specific niche such as data security or infrastructure protection and the constantly evolving nature of the industry leads to disruption risk. Our bottom-up approach means we start with the strongest investment opportunities based on their fundamentals, as we dig deeper we develop an understanding of the theme across its wider industry ecosystem. As such, we can build conviction that we are investing in the innovators and those that can grow ahead of the market.

It helps identify sub-themes where we need to do more work

At a high level the bubble map shows the areas where we have the highest and lowest exposures, in other words, it enables us to orient our fundamental research resources on areas of attractive growth potential. We have recently looked at increasing our exposure to electric vehicles (EV), in our view the car manufacturers do not offer the strongest long-term opportunities here. We prefer to analyse the whole ecosystem of EV, and find opportunities in attractively priced higher value-add areas throughout the value-chain, where there is typically more pricing power. Through assessing the opportunities and valuation upside of the stocks in each theme, we have increased our exposure to EVs through investing in a Dutch semiconductor manufacturer, a leading supplier of components to this industry.

The framework gives us a better visibility over the risk exposures within the portfolio

It provides a fundamental understanding of our portfolios from a thematic perspective. By assessing our diversification to the underlying themes, it aids us in orientating the portfolio towards growth, gaining better insight into the potential risks and ultimately giving us the conviction to hold companies for the long-term.

This is critical, because when building a concentrated, unconstrained portfolio, there is no room for low-conviction holdings. Instead we can invest client’s assets into stocks where we have a greater visibility over their outcomes and build a portfolio diversified by what is important – the sources of future growth.