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Newton Investment Management – PI Partnership


and the rise of dominant internet platforms. Another trend is the proliferation of semi-conductors where microchips are being used in a wider range of products, such as learning servers in data centres, industrial robotics, smart con- sumer technology and electric vehicles. “Faster, cheaper and energy efficient chips are driving this growth,” McMullan said. Innovation in cloud computing means that starting an online business costs a fraction of what it once did. It also provides access to machine learning capabilities which can generate insights from vast quantities of data. “Public cloud services are less than 10% penetrated, meaning that the runway for growth is tremendous,” McMullan said. Growth prospects are also strong for software subscriptions. “Over the next five years enterprise spending on software as a service is expected to double,” he added. Shopping is heading for huge structural shifts thanks to machine learning and artificial intelligence as buying goods is set to move from the physical to the virtual. This will personalise shopping by switching from one-size-fits-all promotions to targeted discounts and let people visualise how furniture will look in their home before buying while goods could be delivered by drone. “The pandemic has fast forwarded these trends taking us closer to a digital-first future,” McMullan said. Among the winners here will be the tech companies that allow retailers to move more efficiently to online from offline.


The future of a manipulated world Brendan Mulhern, a global strategist in the real return team believes that by 2035 the state will play a larger role in peoples’ lives. He sees unemployment as being potentially low as the fur- lough payments introduced in 2020 could morph into a univer- sal basic income programme. He imagines that every country is likely to have a national industrial policy to avoid being overly reliant on China for manufactured products, and he believes that the US’ relationship with China will remain frosty in 2035, but owing to intellectual property issues, not supply chains. Suzanne Hutchins expects inflation to be a lot higher than it is today. Alongside the assets classes she mentioned earlier, com- modities and cyclical equities are on her watchlist. “Areas to avoid include bonds, which have been the highlight in terms of performance over the past decade,” she added. The pandemic has not only caused recessions but also created health and social care emergencies. It has changed investment approaches to the Sustainable Development Goals (SDGs) with a greater focus on social issues. By 2025, Sakshi Bahl, a respon- sible investment analyst, expects to see improvements in health- care, digitalised education and a revival in public-private part- nerships. So, impact investing is firmly on investors’ agenda. “The pandemic taught investors that top scoring ESG compa- nies can make the headlines for the wrong reasons,” she added.


“Some investors missed that ESG alone cannot de-risk an invest- ment, that they need to invest with a purpose, have a vision that delivers outcomes not just outputs and re-imagine capitalism that cares for us in the future rather than me in the present.” Speaking as if she was living in 2025, Bahl said: “Interestingly, ESG was all the rage five years ago but it took Covid-19 to put the “S” firmly centre stage.”


A good way of achieving social goals is to improve the manage- ment of supply chains. Common issues include child and forced labour. Ian Burger, Newton’s head of responsible invest- ment, said that he has seen estimates that 152 million workers around the world are classed as children, half of who work in hazardous conditions. Burger said that it can be challenging to control supply chains because of size and complexity but underlined the importance of being on top of things, using Boohoo as an example. The online clothing retailer’s share price halved when one of its suppliers was under investigation for modern slavery. Newton has always engaged with companies to improve supply chain standards. For example, the firm has successfully worked with a miner in DR Congo which led to improvements in its la- bour and environmental practices.


Engagement is also needed when it comes to climate change. Last year proved that the consequences of the issue are all too real with bushfires in Australia and the US as well as unprece- dented temperatures recorded in Siberia. If such extreme weather events continue, will we one day have to wear a mask to protect us from the sun? Yet Andrew Parry, Newton’s head of sustainable investment, is optimistic that such events might be averted as more and more governments are taking action. China, the US, Japan and Korea have committed to achieving zero carbon targets, while Vladimir Putin has talked about pre- paring for a similar goal. “This is important because to gener- ate change we need governments to change it,” Parry said. When it comes to the question of energy transition, Newton has taken a stance by being significantly underweight in oil and gas and opted for electrification and energy efficiency exposure. “Our view is that oil companies are going to play a part in the energy sector for the next two decades or more, but the oppor- tunities are not there,” said Rob Stewart, head of responsible and charity investment. “The four-fold rise in spending is in renewables. This is where the real growth and opportunities will be going forward.”


Issue 99 | December–January 2021 | portfolio institutional | 29


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